US ISM Manufacturing: Despite rebound, details still point to activity slowing - Wells Fargo

The ISM Manufacturing Index rebounded in January after an “alarming” pullback in December. Analysts at Wells Fargo warn that despite the headline’s increase, details continue to point to factory activity slowing on trend. 

Key Quotes: 

“After posting the single-largest monthly decline since 2008 in December, the ISM manufacturing index recovered 2.3 points in January. The rebound should allay fears of a rapid deterioration in the factory sector, but we still see signs of slowing.”

“Current activity picked up in January, with the production index rising to a five-month high.”

“The bounce-back looks overly strong relative to the January readings from the Federal Reserve regional PMIs, making us skeptical that the outlook for orders is as bright as is indicated solely by the ISM. Nevertheless, in light of the absence of “hard” data on orders thanks to the government shutdown, the rebound offers some evidence that manufacturing activity and capital spending is hanging in there.”

“Looking ahead, the road for the manufacturing sector remains a bumpy one. Growth in domestic demand is expected to ease this year as fiscal stimulus begins to wear off. At the same time, the global backdrop continues to be challenging. Growth abroad is slowing, trade disputes are ongoing and the broad trade-weighted dollar index remains near its high of this expansion. We expect activity to hold up, but for the factory to sector to not perform nearly as impressively as it did in 2017 and 2018.”