On Monday, December 2, Eastern time, the Institute for supply management (ISM) released the latest manufacturing data. The data shows that the ISM U.S. manufacturing Purchasing Managers Index (PMI) in November was 48.1, lower than market expectations of 49.4 and 48.3 in October, approaching a 10-year low of 47.8 set in September. At present, the index has been below the 50 boom and bust line for the fourth consecutive month, which means that manufacturing activity continues to shrink.
In terms of sub indicators, almost all key ism indexes in November are below the boom and bust lines. The new manufacturing order index was 47.2, down 1.9 percentage points on a month on month basis; the employment index was 46.6, down 1.1 percentage points on a month on month basis; the new export order index was 47.9, down 2.5 percentage points on a month on month basis; the inventory index was 45.5, down 3.4 percentage points on a month on month basis.
As a leading indicator of the U.S. economy, ISM manufacturing PMI has been in a downward trend since it hit a 14 year high in August last year. Despite a pick-up in October, the overall performance is still weak.
Wu Zhaoyin, director of macro strategy of AVIC trust, told 21st century economic news that the rise of manufacturing PMI in October and the decline in November showed that the Feds three consecutive interest rate cuts had a supporting effect on the U.S. economy.
Although manufacturing accounts for only a fifth of U.S. GDP, manufacturing PMI is considered a reliable wind vane in other economic sectors. However, Shao Yu, chief economist of Orient Securities, stressed to the 21st century economic reporter that the U.S. economy is dominated by consumption and service industries, so the impact of weak manufacturing industry is limited.
Trump again opened fire on the fed after manufacturing data was released. Trump said that the strong US dollar has restrained the growth of US manufacturing industry, and the culprit behind it is Federal Reserve Chairman Powell. Since he took office, he has adopted the wrong interest rate policy and quantitative tightening, which has made the dollar stronger. Once again, he called on the Federal Reserve to cut interest rates and further relax monetary policy to keep the United States competitive in the world.
Ian Shepherdson, chief economist at Pantheon macroeconomics, said manufacturing is in a moderate recession and it is almost impossible to really recover in the short term.. This will drag down employment growth and capital spending in the coming months, and we do not rule out the possibility that the Federal Reserve will further ease monetary policy in January next year.
On Friday, the U.S. Department of labor will release its November non farm report, when the performance of the job market will be of great concern. Wu Zhaoyin told reporters that the contraction of manufacturing industry will affect the performance of the employment market. If the non-agricultural employment data is not as good as expected, US stocks may see another big drop.
US economic outlook is uncertain
Different from the manufacturing index, the U.S. stock market has set new highs in November, which was affected by many favorable factors. The three major U.S. stock indexes rose more than 3% in the whole November, the biggest increase since June this year.
However, analysts believe that the main reason for the rise in US stocks in November is the relatively loose monetary policy of the Federal Reserve. In an interview with 21st century economic reporter, Shao Yu said that this year, the Federal Reserve rarely cut interest rates before the economic downturn. The stock market reacted strongly to this, and the three major stock indexes rose one after another. Mr Shao also said investors chose to put money in the US stock market because of loose liquidity and few real economic opportunities.
Wu Zhaoyin told reporters that the outstanding performance of U.S. stocks in November was mainly due to the Federal Reserves loose monetary policy slowing down the economic downturn. The short-term stabilization of the U.S. economy is stimulated by the Federal Reserve policy, and it is still a downward trend in the long run.
Wu predicts that the U.S. economy will probably enter a recession by the end of the first quarter of next year. At present, the leading indicators have been weak, and the synchronous indicator GDP also shows signs of turning around. The lagging indicator unemployment rate and employment data may soon decline.
In addition to the Feds policy stimulus, another reason for the strong trend of US stocks in November was the easing of the international trade situation. However, December has just begun, and the international trade situation is changing rapidly. Trump said Tuesday that the United States would immediately resume the imposition of tariffs on steel and aluminum products imported from Brazil and Argentina, Xinhua reported.
Brazil and Argentina have been operating massive devaluations of their currencies, trump said. This is not good for our farmers. Therefore, with immediate effect, I will restore tariffs on steel and aluminum products shipped to the United States by these countries.
In addition, the U.S. trade representative office said Tuesday that Frances digital services tax (DST) discriminates against U.S. companies and is inconsistent with current international tax policy principles. In response to the French digital tax, the United States will impose tariffs on $2.4 billion of French goods, and will investigate Italy, Turkey and Austria for the digital tax.
In response, French finance minister le Maire said that the latest tariff threat launched by the United States against French goods was unacceptable and that if the United States implements new sanctions, the EU will be ready to fight back.
The trump administrations actions have greatly increased the uncertainty of the international trade situation. Shao Yu told reporters that international trade frictions have put pressure on the US manufacturing industry. The weakness of US manufacturing industry is mainly due to investors concerns about the direction of globalization and whether international trade friction will lead to economic decoupling and other uncertain factors. These uncertainties hinder the investment of American enterprises.
Shao Yu stressed to reporters that the prospects of the US economy and the global economy will depend on whether globalization will fundamentally change due to current conflicts and frictions. If there is a change, it will have a series of impacts on the global and American economy. Whether countries can reach a constructive plan in the short term deserves attention.
Investors also need to be wary of an election cycle.. In 2020, the United States will hold a general election. Shao Yu believes that in order to stimulate economic growth, trump is expected to continue to put pressure on the Federal Reserve and continue to call for low interest rates.
Wu Zhaoyin also believes that the economy in the election year will be affected by the domestic election situation in the United States, and trump will take a series of measures to stimulate the economy. If the economic downturn is too fast, it will be bad for Trumps campaign.
Source: responsible editor of 21st century economic report: Wang Xiaowu NF