Markets with Megan

What if the economic indicators we've relied on for years are painting a dire picture too grim to ignore? On Markets with Megan, we dissect the latest ISM manufacturing report, revealing a sector mired in contraction for 21 out of the last 22 months. Discover how these troubling trends could impact GDP, inflation, and corporate margins, as manufacturers grapple with rising costs and increasing inventories.

We'll also set the stage for the rest of the week, previewing critical economic data releases like the ISM services report and the highly anticipated employment report. These reports will offer key insights into the broader economic landscape and could sway the Federal Reserve's decisions in their upcoming September meeting. Stay tuned for expert analyses and informed opinions that will help you navigate these uncertain economic times. As always, if you appreciate our deep dives, remember to like, subscribe, and keep listening for more comprehensive coverage.

Another monthly manufacturing report and, unfortunately, still another dismal report for manufacturing. It is Tuesday, september the 3rd, and this is your Markets with Megan. We're going to talk about the ISM manufacturing report that was released this morning. It comes out usually the first or second day of every month and it gives us the activity in the manufacturing sector for the prior month and what we saw is that in August it again was another report where we're in contraction territory in manufacturing. This confirms some of the reports we got in the regional surveys which were really, really weak, and it does now has translated into the broader ISM manufacturing report.

Now this report comes with a lot of different underlying factors for the economy and some of the things that we like to look at, not only for GDP but also for inflation, so let's dig right into it. Basically, every factor in this report or every sector that's looked at, except for supplier delivery times, inventories and prices paid, are all deeply in contraction territory. The index itself has been in contraction territory, which is a level below 50, for 21 out of the past 22 months. When you look at the production component, this tends to have a big correlation with GDP. That actually just reached the lowest level since the pandemic, since May of 2020. So not a good indicator here for third quarter GDP. When you look at inventories, this did rise, but you also have to keep in mind that, even though inventories rose, what tends to happen if inventories are rising and the economy is weakening that'll give back in the future months where inventories they'll actually try and deplete those inventories. This is the highest level of inventories we've seen since January of 2023. Now, when you also look at things like the prices paid and this does not get enough tension in our mind prices paid jumped. So this is the number that this is the prices that manufacturings are having to pay in order to make these goods. Now is it going to translate into CPI or other inflation indicators? If it does not, that means that businesses are no longer able to pass on prices, so this is bad for margins from the corporate standpoint. So we're watching this closely. We think the Fed probably is watching this very closely as well.

Now it's a big week for economic data. We'll come back tomorrow. We'll give you a review of the month of August from an economic and asset class perspective, but we will be getting the sister report to the ISM manufacturing today. We'll get that on Thursday. That's the ISM services, and this is where we spend the most of our money from an economy is in the service sector. So we'll be watching that closely and then we'll round out the end of this week with this much anticipated employment report, which will have big ramifications on what the Fed ends up doing at their September meeting. That's all we have today. If you like this podcast, please hit the like. Hit the alarm bell. And if you'd like a broader history of our podcast, please hit the like. Hit the alarm bell. And if you'd like a broader history of our podcast, you can find that at marketswithmegan dot fm. Thank you.