ISM Manufacturing

New orders component is key, and how key will depend on how new orders average out over the next few months:

It is very difficult to rely on reported seasonally adjusted PMI indicators, especially during periods of great uncertainty.   Seasonally adjusted data depends on the future being more or less the same as the past.

If we have adjusted upwards to account for normal seasonal weakness we are henceforth dependent on manufacturing activity rebounding normally in seasonally strong periods. 

When we have uncertainty, it is possible that the sequencing of orders, backlogs and production can be impacted by pushing forward or backwards orders and production. 

For example, if firms cut back on orders in one period, and in the next to compensate for lower inventory brought forward orders from the next, we may get stronger seasonally adjusted data but for the wrong reasons.

Unadjusted new orders weakened in October, while unadjusted production showed no overall change.  Strength was found in the adjusted orders and production indexes.

On the other hand, adjusted data showed a weakening employment index (slower growth);  faster supplier deliveries (less production bottlenecks and smaller backlogs); no change to inventories (may be uncertain over future demand and are not ramping up production in anticipation of future orders); falling customer inventories (customers cutting back on orders and uncertain over future demand); falling backlogs of orders (helping inflate the seasonally adjusted production index); and further declines in import and export indexes which imply weakness.

It would appear that the still +ve reading is dependent on the new order component given that production could be explained by falling backlogs.     

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