US: Sharp decline in ISM Manufacturing is a concerning development - ING

The ISM Manufacturing Index dropped in December to the lowest level in two years but remained above 50. James Knightley, Chief International Economist at ING, point out that the decline in the ISM Manufacturing index adds to the sense of unease about the outlook for the global economy and reinforces the financial market gloom. 

Key Quotes: 

“It dropped from 59.3 in November to 54.1 – the steepest decline since 2008. When combined with poor outcomes from the Chinese and Eurozone surveys, it adds to concerns about the outlook for global growth in 2019.”

“Given the headline ISM index was up at a 14 year high as recently as August this is a concerning development.” 

“This survey, coupled with the recent financial market turmoil offers further evidence to suggest that the pace of Federal Reserve interest rate hikes will be much more modest in 2019 versus last year. Indeed, it is consistent with our view that the Fed will probably pause its policy tightening in Q1.”

“The ISM index is still pointing to growth, albeit slower than what we saw in the middle of 2018. The current US-China trade ceasefire until March also provides breathing room, and if progress can be made resulting in some form of resolution, or at least an extension of the peace, this would clearly be positive for the economic outlook in the first half of the year.”