Flat ISM signals hurdle of uncertainty for Manufacturing

Wells Fargo Research Team Wells Fargo

Summary

A flat reading on the ISM manufacturing index tells us business capex plans are on hold amid uncertainty over the path to lower interest rates and the presidential election outcome. The details show inflation is a fading problem, while jobs are a growing worry.

Broken record

The September ISM suggested more of the same for U.S. manufacturing. The ISM index held steady at 47.2 last month and the vibe from purchasing managers is one of waiting (chart). Waiting for the outcome of the presidential election, and waiting on more interest rate cuts to be realized and translate to lower borrowing costs. Take it from a respondent from the furniture & related products' industry who said: “Business is flat. Waiting for interest rates to drop and the election outcome in November before we confirm our 2025 plans. Currently planning on a flat 2025.” Another respondent from the fabricated metals' industry said: “The fourth quarter is slower than anticipated. We won’t realize the effect of interest rate adjustments with new project starts until the first quarter of 2025.” This isn't a surprise to us. Uncertainty is the biggest challenge when it comes to capex. You can plan for a change in rates and different policy, but not knowing what to plan for is the biggest headwind.

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Wells Fargo Research Team

Wells Fargo

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