Flash Manufacturing PMI at a 6 Month High

Weak Durable Goods

September durable goods orders report was terrible. On a monthly basis, new orders growth was -1.1% which missed estimates for -0.7% and fell from August’s 0.3% growth. The chart below beautifully shows the cycle as it is the 12 month rolling average of the 12 month cumulative change in orders. As you can see, we are headed towards the low end of this cycle. 

It might bottom in 2020 if it follows the last cycle. Obviously, there is no guarantee this slowdown will trough as nicely as the last one; the economy could fall into a recession.

Excluding transportation, durable goods orders fell 0.3% monthly which missed estimates for a 0.1% decline. Transportation was clearly as issue as this decline and miss were lower than the overall miss. Core capital goods orders fell 0.5% monthly which missed estimates for -0.2%. Making matters worse, August’s growth rate was revised from -0.2% to -0.6%.

Commercial aircraft orders fell 11.8% because of the grounding of the 737 Max. A GM strike caused motor vehicle orders to fall 1.6% and related shipments to fall 1.5%. Monthly fabrications and computers orders fell 1.5% and 0.9% monthly. Machinery orders were up 0.2%. Shipments for core capital goods fell 0.7% after no change in the previous month and a 0.7% decline in July.

Yearly growth looks very problematic as non-defense capital goods orders growth excluding aircrafts fell sharply last September, but growth didn’t improve with the easier comp. 2 year growth stack went from 6.91% to 0.93%. That’s a huge negative swing that’s masked if you just look at the yearly growth rate which went from -71 to -78 basis points. 

Comp gets tougher in the next 2 months which is bad news for future yearly growth. In the last cycle, growth troughed at -8.6% in December 2015. I’m guessing growth will be worse than -5% in November as the comp is 6.1%. For overall durable goods, order growth fell from -2.85% to -5.35%. 

2 year growth stack fell from 10.13% to 2.45%. We’re at the point in the cycle where comps are starting to get easier. But the economy is so weak that the numbers still worsen. In Q3, the quarterly average growth rate was -2.47% which is the worst since Q3 2016 at -2.58%.

Jobless Claims Fall Again

In the week of October 19th, jobless claims fell 4,000 to 212,000 which was below estimates for 214,000. 4 week moving average fell from 215,750 to 215,000. Jobless claims once again signal there is no cause for concern about a recession. Claims is one of the metrics in the current activity indicator which is consistent with 2.25% GDP growth. This report measures the 3rd week of the month which means it’s the weak of the BLS report. Decline in claims might mean the BLS report will be good.

As you can see from the chart below, heading into this report the 4 week average hadn’t had a yearly decline in 8 straight weeks. That was the longest streak since the last recession. This signals jobless claims are stabilizing. They can’t move lower. So I don’t think very modest increases imply a recession is coming. And, I need to see the 4 week average rise above 275,000 before I’m nervous about one.

Markit Flash PMI Increases Slightly In October

Markit PMI has been one of the soft data reports which have been weak in the past couple months. The situation changed mildly with the October Markit report which had its composite flash reading increase from 51 to 51.2 which is a 3 month high. Improvement was mainly because of the manufacturing sector. It showed improvement just like the average of the first 3 October manufacturing regional Fed reports. Especially the Richmond Fed one. 

Specifically, the manufacturing PMI rose from 51.1 to 51.5 which is a 6 month high. That’s way above the September ISM PMI of 47.8. Manufacturing output PMI increased from 51.8 to 52.7 which is also a 6 month high. Service sector PMI only increased 0.1 to 51 which is a 3 month high.

Even though the composite PMI increased, the new work growth index was its lowest ever. This question started being asked in October 2009. On the other hand, manufacturers had the quickest increase in new business volumes since April. It means the new work issue was with services. Backlogs fell for the 3rd month straight as new work is near stall speed. Employment fell for the 2nd straight month.

As you can see from the chart below, the employment index was the weakest since December 2009. It’s consistent with only about 50,000 jobs added which is below the amount necessary to keep up with growth in the population rate. Surprisingly, optimism increased to the highest level in 4 months because of hopes from improved domestic conditions. This Markit report is consistent with 1.5% GDP growth which is in line with the median estimate for Q3. 

In the service sector, new business added declined which ended a 10 year run of sustained expansion. Staffing fell for the 2nd straight month and was the weakest since December 2009.  In the manufacturing sector, new export sales increased for the first time in 4 months. 

Business confidence increased for the 2nd straight month and was the strongest since June. Businesses are hoping for an improvement in global trade. However, the auto industry was still weak.


Durable goods orders report was terrible. At least jobless claims were low again. 4 week average was below where it was last year. The Markit report wasn’t a disaster as the composite improved mostly because of manufacturing. 

Even still, the employment category hit the lowest level since December 2009. And the new orders index was the lowest in history (it started in October 2009).

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1 Comment

  • Thomas Toedtman

    October 26, 2019

    The take away for me is the Durable goods chart will need a few quarters at least before we could see it turn up, maybe longer.
    China's moves toward EV's has crushed the sales of internal combustion engines(ICE)causing the downturn in German and US auto sales there. Meanwhile vehicle inventories in the US are very high and 4 million vehicles are coming off lease this year.
    This situation does not bode well for the manufacturers and resellers, further discounting of prices for the buyer seems inevitable.