US manufacturing remains robust, but jobs market stays subdued
In terms of today’s US data, the August ISM manufacturing index is a touch softer than expected at 54.6 in August, down from 55.6 (consensus 55.2). The 50 mark separates expansion from contraction: the further the index rises above 50, the faster the pace of growth, while readings below 50 indicate contraction, with lower values signalling a steeper decline.
In terms of the details, the production index remains in very strong growth territory at 58.3, historically consistent with GDP growth of close to 3%.
New orders slipped to 53.7 from 56.7, the weakest reading since March, while employment moderated to 51.2 from 52.8, but remains clear of the 6M average of 49.6.
In general, the activity metrics underscore the improvements seen in the manufacturing sector, which is in large part a consequence of the surge in tech related investment spending.
The downside is the prices paid component remains very firm at 71.1, indicating input costs, such as energy, commodities and semiconductors, continue to increase at a rapid pace.
Overall, there is nothing in this report to moderate market pricing over a Federal Reserve rate hike later in the month – that currently stands at 16bp of a potential 25bp hike.
US ISM output metrics versus YoY GDP growth
Source: Macrobond, ING
The headline seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI) was unchanged at 53.9 in August, signaling a solid expansion in the manufacturing economy. (…)
Manufacturers continued to build inventories of inputs and finished goods to guard against price increases and delivery delays, although another marked lengthening of average lead times hindered these efforts. (…)
New orders rose at a solid pace in August that was little changed from July. Growth was largely confined to the domestic market, however, as exports fell for the fourteenth month running. Tariffs were reported to have weighed on
foreign sales, although some firms noted that pockets of improved demand from Europe had partly offset this impact. (…)Purchasing activity increased for the eighth month running, in line with increased production requirements. Where buying rose, firms also linked this to efforts to secure inputs ahead of further price increases and supply disruption. As
a result, pre-production inventories continued to expand, although the pace of accumulation was the softest since April amid difficulties receiving inputs due to material shortages and high prices.These issues contributed to another marked lengthening of average lead times in August, with the latest deterioration among the steepest seen over the past four years.
(…) goods producers reporting broad-based increases in input prices linked to the war in the Middle East and tariffs. Manufacturing companies, in turn, raised charges at the slowest pace since February.
Canada: Growth maintained at solid rate as output, new orders and employment all rise
(…) Panellists reported that demand had improved since July, albeit predominately from domestic markets. New export orders fell for the third successive month, largely due to the ongoing negative impact of trade tariffs.
Helping to support the expansion of production in August was a solid rise in employment, with overall job creation the best since October 2024. Extra staff were generally hired to increase capacity and help deal with rising overall workloads.
Although growth was modest, backlogs of work nonetheless rose to the greatest degree since June 2022.
(…) purchasing and stock accumulation partly reflected pre-purchasing of goods due to worries over price trends and product availability.
On the price front, input cost inflation was again historically elevated, despite easing to a four-month low. Panellists principally attributed inflation to US tariffs, higher fuel costs and increased prices for metals like aluminium and steel. Where possible, costs were passed on to customers via an increase in output prices, although inflation also dropped since July.
Hurray for the Bond Market Higher yields aren’t yet a crisis. They could be if the politicians in Washington don’t listen.
(…) Spendthrift governments might finally have to pay more to borrow and tighten their belts as a result. (…)
Neither party in Washington is willing to reform the runaway entitlements that are driving the debt.
The bond vigilantes aren’t yet in full cry, but their early murmurs are welcome. They are sending a message to Washington and other Western nations to clean up their fiscal acts. Bond investors may be the only people who can force the politicians to pay attention. The real worry is if the politicians don’t listen.
Scott Bessent after the G-20 that he graciously kicked off mocking Canada gave the US government’s position on that:
“The world is awash in debt,” Bessent told reporters Monday at the gathering. “The only way for us to get out of this is to grow our way out of it.”
“With America once again leading this forum, the days of settling for subpar growth are over. The discussions we’ve had here this week leave me confident that many of our partners are now prepared to join us.”
Kevin Warsh, an avowed market listener, seems to think there are more than one way “out of this”.
Investors are now clear about the asynchrony between the Fed and the current administration.
Greg Ip about Bessent’s only way:
This is not a credible solution. First, growth hasn’t come to the rescue yet. U.S. GDP is up 2.1% in the past 12 months, in line with Joe Biden’s last year in office. The federal deficit is likely to top 6% of GDP this fiscal year, in line with or higher than in Biden’s last full fiscal year.
Second, an AI boom isn’t enough. In a recent paper, economists Doug Elmendorf, Karen Dynan and Louise Sheiner examined scenarios in which AI sustainably boosted annual productivity growth by a half to a full percentage point, with differing impacts on employment. In all scenarios, the debt keeps rising as a share of GDP, albeit more slowly than now.
Third, better growth naturally leads to higher interest rates, which raises the interest bill on the debt. Indeed, that may be one factor at work now. Heady visions of AI’s potential have uncorked a tidal wave of AI-linked borrowing.
Gavekal sums up this financial world:
(…) a world in which policy settings across the Western world will most likely stay the same (i.e.: profligate fiscal policies, monetary policies that stay behind the curve, trade policies that crush productivity and forward planning, and diplomacy which favors wars and conflict over peace and compromises).
US Diesel Hits Highest Since April as Wars Strain Global Supply
(…) Diesel is the lifeblood of the global economy, powering trucks, agriculture and construction, and spikes at the retail level affect industries as well as consumers. The fuel has been boosted this year by the conflict in the Middle East, as well as the Russia-Ukraine war. Moscow — typically a major supplier — has curbed exports following waves of attacks on its refineries. (…)
(…) Jeff Currie, a well-established commentator on commodity markets and a senior advisor at the Carlyle Group, warned investors about refined products a few weeks ago. Interviewed by CNBC Aug 18, Currie emphasized that markets were looking at the wrong price: “Nobody on the planet consumes crude oil except refineries. Everyone else consumes gasoline, diesel and jet fuel and those markets look considerably uglier.” (…)
[Goldman’s trader] Privorotsky also warns that even if the U.S. now decides to “aggressively de-escalate” that “crude is just one component of the problem as distillate, gasoil, diesel and critically, European natural gas have all broken out.” (…)
(…) “The perception that this [conflict] is all going to be over by Christmas is fading fast,” said Mike Bell, head of market strategy at RBC BlueBay Asset Management. “That’s driving the market.” (…)
Gas companies traditionally store up supplies over the summer months to smooth out any disruption over the winter, but this year stores are at their lowest level for more than a decade. Across the EU, stocks were only 63 per cent full in the last week of August. (…)
The supply crunch is also hitting
- LNG (20% of global trade through Hormuz)
- Fertilizers and chemicals (30%)
- Aluminum (9%)
- Methanol (30%), feedstock for resins, coatings and plastics
- Helium (30%), semiconductor manufacturing, MRI scanners.
- Sulfur (~50%), a feedstock for sulfuric acid, a chemical required for two global workflows: EV batteries, fertilizers.
- Graphite: EV batteries
- Glycol: key input for polyester fibres, packaging and textiles
- Iron ore/steel pellets
- Green hydrogen
(Yardeni Research)
Beware: September Is Back Again
Everyone in the stock market knows that September is the cruelest month for stocks. But when it is a bad month, it tends to create buying opportunities for a year-end rally that often starts in October. (…)
We share the Bond Vigilantes’ concerns, but we aren’t convinced bond yields are, or will soon be, prohibitively high. True, they are back to levels seen before the Great Financial Crisis (GFC). But that’s because they are normalizing after a long period of abnormally low bond yields following the GFC, when central banks were rigging bond markets.
Since the lows of the Great Virus Crisis, yields in the major overseas government bond markets have mostly recovered and converged to their respective national nominal GDP growth rates.
As we’ve recently observed, in the US, nominal GDP rose 6.6% y/y during Q2-2026, while the 10-year Treasury yield is 4.80% this evening. If it hits 5.00%, we expect strong demand for the bond, including from Treasury Secretary Scott Bessent. He’ll issue more Treasury bills to buy back bonds if necessary to avert a selling panic. (…)
- September is historically the toughest month for equities, with positive returns just 49% of the time. (The Daily Shot)
Renaissance Macro Research via EntryPoint by Sherwood
Historically, September’s worst S&P 500 declines have overwhelmingly occurred during already-weak markets.
Source: @RyanDetrick
Strong year-to-date gains have historically preceded many of the best September returns, suggesting the S&P 500’s nearly 13% advance in 2026 may reduce the risk of a sharp September selloff.
Source: @RyanDetrick
