ISM vs Markit PMI Divergence Widens Again: Believe Markit

The manufacturing soft-data reports have been nearly unanimous in reporting widespread strength that has not shown up in any hard data reports.

by Mish

One exception has been Markit’s US Manufacturing PMI report that has consistently been of a muddle-through quality.

Let’s compare the ISM Report on Business to Markit’s PMI, both out today.

Markit PMI

Markit Manufacturing Growth Weakens Again in June

Key Findings
Slowest rise in production volumes since September 2016
New order growth eases for fifth month running
Input prices broadly unchanged in JuneJune data pointed to a relatively subdued month for the U.S. manufacturing sector, with output, new order and employment growth all slowing since May. At the same time, survey respondents signalled resilient confidence towards the year ahead outlook, with optimism up to its strongest level since February. Meanwhile, cost pressures were the weakest recorded for 15 months, which resulted in the slowest pace of factory gate price inflation since late-2016.
Higher levels of manufacturing production have been recorded since June 2016. However, the rate of expansion was only modest and eased to a nine-month low in June. Survey respondents noted that softer new business growth continued to act as a brake on production schedules.
Some firms noted that efforts to boost inventories of finished goods helped to lift output levels. The latest rise in post-production inventories was the fastest recorded since January’s survey-record high. Stocks of purchases also increased in June, with the rate of inventory accumulation the sharpest for four months.

Chris Williamson, Markit Chief Economist Comments

  • “Manufacturers reported a disappointing end to the second quarter, with few signs of growth picking up any time soon.”
  • “The PMI has been sliding lower since the peak seen in January and the June reading points to a stagnation – at best – in the official manufacturing output data.”
  • “The survey’s employment index meanwhile suggests that factories will make little or no contribution to non-farm payroll growth in June.”
  • “Forward looking indicators – notably a further slowdown in inflows of new business to a nine-month low and a sharp drop in the new orders to inventory ratio – suggest that the risks are weighted to the downside for coming months.”
  • “Any good news was saved for inflation, with price pressures easing substantially in June on the back of waning global commodity prices.”

ISM’s economist expected 4.3% growth in the first quarter. ISM has been on the high side for years now. There is no reason to place any faith in ISM reports or any other diffusion indexes that bear no resemblance to hard data results.

Mike “Mish” Shedlock

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