The headline index in four of the five District Bank surveys of manufacturing pointed in the same direction for December – down. The one that was up was only slightly so and was consistent with modest growth. While the regional data doesn’t necessarily tell us what will be up with the ISM Manufacturing Index, the tone of the reports strongly suggest that the mild manufacturing recession begun in August is going to extend into December.
The ISM is breaking pattern with the release of the December data due to the timing of the New Years holiday. The report will be released on the second business day of the month at 10:00 ET on Friday, January 3. Also, the annual revisions for the ISM Manufacturing Index are expected on Friday, January 27, one week before the release of the January report at 10:00 ET on Monday, February 3.
The New York Fed’s general business conditions index – a measure of sentiment — for December was up to 3.5 from 2.9 in November. It has the weakest of the correlations (0.719) with the ISM Manufacturing Index. Its small 0.6 point rise to a level that is only narrowly expansionary does not suggest much chance that the ISM measure will rise above the 50-mark in December.
The next weakest correlation is for the Kansas City Fed’s Manufacturing Index (0.757). It is a composite index and fell five points to -8 in December, bringing the index to six months of contractionary readings and was the lowest since -10 in February 2016. It indicated conditions are worsening for the Kansas City District’s manufacturers.
The Dallas Fed’s manufacturing business activity index is another measure of sentiment and was down to -3.2 in December after -1.3 in November. It has been negative for three straight months. Its correlation with the ISM number is solid (0.805). The index has reflected uneven sentiment for the past year as the factory sector reacted to the ups-and-downs of news regarding trade and tariff policy. The past few months have been more settled into a period of contraction.
The best correlation with the ISM index is for the Philadelphia Fed’s general business conditions index (0.835) and the Richmond Fed’s Composite Manufacturing Index (0.854). It hasn’t been the case in the past few months, but December saw both indexes signal a decline. The Philadelphia index for manufacturing sentiment fell to a meager expansion of 0.3 in December after 10.4 in November, while the Richmond index was down to -5 after -1 in the prior month. With both reports pointing in the same direction, it offers less chance of an upside surprise for the ISM Manufacturing Index when it is reported at 10:00 ET on Friday, January 3.
However, I note that the calculations for the regional equivalents to the ISM Manufacturing Index were more positive in tone and actually suggested some improvement in three of the five indexes. I do not expect the ISM index to move above neutral for December, but it could move up from the 48.1 in November and perhaps be the best since the 49.1 in August.
Disclaimer: Whetstone Analysis provides commentary as a service to its subscribers. Whetstone Analysis is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained within the site. While the information contained within the site is periodically updated and every effort is made to ensure its accuracy, no guarantee is given that the information provided in this Web site is correct, complete, and up-to-date. Click here to read our full Disclaimer.