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Tuesday, June 4, 2019

ISM PMI analysis for the US economy.

We have put in the above PMI numbers on our PMI flow chart to give our viewers a clearer picture.

The PMI headline number has decreased from 52.8 (April) to 52.1 (May).

Let's suss out the real situation in the US.

The new order increased by 1 because of the new export order (+1.5) but the local order decreased.  In other words, this showed that the local consumption had decreased in May which meant that the US citizens were holding back their purchases.  The new export order increased because Trump forced other smaller nations to buy more from the US with tariff threats.

Although the new order increased by 1 in May, the production sub-index decreased by 1.  This showed that the manufacturers didn't expect the increase to continue and they were just producing to meet their existing orders.  This was substantiated with the increase in customers' inventories and a decline in backlog of orders (-6.7).  The inventories and supplier's deliveries also declined because of the production cut.  The employment sub-index looked set to decline if the production cut persisted because manufacturers would cut inventories first before laying off workers.

The prices sub-index increased by 3.2 because the manufacturers switched to local raw materials which were costlier.  Moreover, the tight labour market also induced the manufacturers to pay higher salaries.

Since local consumption makes up close to 70% of the US economy, the US GDP is likely to decline further as the US citizens are not spending like before as prices have increased.  The US-China trade war is beginning to hurt the US economy now.

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