Breaking Down the ISM Manufacturing Report: Impact of Recession Speculations | Episode 087 | 1-03-2024

Welcome back, and a Happy New Year to all our listeners! Today, Megan Horneman looks into the latest insights from the ISM Manufacturing Report, a crucial indicator for the overall manufacturing sector in the US. Despite being in contraction territory for the 14th consecutive month, Megan touches on why this doesn't necessarily signal an impending recession. She breaks down the various components of the report, highlighting significant declines in inventories and prices paid, which, while negative for the index, could positively impact inflation. Megan also talks about the weak areas, such as new orders and customer inventories, emphasizing their role as leading indicators for the economy. If you have any questions or comments, feel free to reach out to podcast at Verdence dot com. Here's to another great year of Markets with Megan. Thank you for tuning in! 

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Hello, welcome back, and Happy New Year. This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today. We're going to pick back up for this year with our Markets with Megan, talking about some of the economic data that we receive and some of the market actions that we've received from that. This morning, we're going to talk about the ISM Manufacturing Report. This usually kicks off every calendar month. This is a report on the overall manufacturing sector in the US, and this tends to be a leading indicator for recessions. However, this has been in contraction territory now for the 14th consecutive month, and we still do not have a recession in sight.

What we're seeing in this report is, as I said, it's in contraction territory, which is a level below 50. When we look at all the different components in this index, all of them except for one are also contracting. Some of the biggest declines we saw this past month were in inventories, also in the prices paid component. This is a negative for the index but can have a positive impact on inflation because prices that the manufacturers are paying are coming down. We're hoping that translates in to passing on to the consumer. Some of the other areas that were weak were new orders. This is a leading indicator for the economy as well. And also, as I mentioned, the customer inventories. We did see a pick up in new export orders, which is good news, but still, each one of these component's production, backlog of orders, employment, and imports all of these are things that are in contraction territory in the manufacturing sector.

This is the first big piece of information we'll week this to kick off 2024. Again, not a great report with manufacturing. We know it's been in contraction territory for quite some time. We'll be back for the rest of this week, especially on Friday, when we get that much- anticipated employment report. That should give us some more indication on what direction the Fed will be going