The markets are not a fan of the global manufacturing numbers coming out. This week’s returns may indicate equity markets actively don’t like the manufacturing numbers. The S&P 500 was down 2.5% for the week as of yesterday. This is the lowest weekly level since the beginning of August.

We are seeing the impact of the trade conflict on global manufacturing. Purchasing Managers Index numbers across Europe were weak. The U.S. ISM Manufacturing number of 47.8 for September was lower than the expected 50.4. A number above 50 has traditionally been a bullish signal, numbers below 50, a little more bearish. The expectation has been for some weakness in manufacturing as the protracted trade conflict continues. We saw some frontloading of inventories in 2018 in anticipation of this.

Another drag on the economy was the ADP Employment Survey revision. The original reading of 140,000 was revised down to 135,000. Despite the revision, employment continues to be a positive macroeconomic factor.

Other macro numbers out this week show some economic strength. Pending home sales for August were up 1.6%. An increase of 1% was expected. This is substantially better than the previous month’s decline of 2.5%.

Final numbers are in for August orders of durable goods. Orders grew by 0.16%. The preliminary numbers showed growth in orders of 0.2% versus an expected decline of 1.2%. The growth was led by orders of fabricated metal products. Transport equipment orders were a drag on growth. Excluding transportation, durable goods orders grew by 0.5%. Factory orders, despite seeing a decline, came in better than expected. August saw a contraction of 0.1%, and a contraction of 0.5% was expected.

Wholesale Inventories growth was revised up to 0.4% from 0.2%. Companies stocking up on inventory usually indicates the expectation that consumers will be spending and buying goods in the future.

Month-over-month Personal Consumption Expenditure (PCE) growth for August was 0.1%. PCE is the primary measure the Federal Reserve uses when determining inflation levels. Personal income grew by 0.4%, which was right in-line with expectations. The increase in personal income reflected increases in wages and salaries.

S&P 500 earnings results have begun trickling in. Earnings expectations for the third quarter are low. Analysts are expecting increasing production costs to negatively impact earnings growth.

Contributed by | Kuuku Saah, CFA, Investment Analyst

Kuuku is an Investment Analyst at BTC Capital Management with nine years of investment management experience. Kuuku’s primary responsibilities include portfolio management and analysis. Kuuku attended Drake University and double-majored in finance and economics. He is a holder of the right to use the Chartered Financial Analyst® designation.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
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