Monitoring US Industry, Labor, Yields

Mobius Intel Brief:

U.S. manufacturing activity measured by the Institute for Supply Management (ISM) contracted for the fifth consecutive month and the 21st time in the last 22 months.

ISM’s August manufacturing PMI gained 0.4 pp from July to 47.2, indicating the sector’s rate of contraction slowed. Several subindices registered notable M/M changes, led by reports of weak demand and declining output. We dissect August’s prints relative to their historical distribution since 1990 below.

The U.S. economic data feed continued on Wednesday with JOLTs job openings and separations for July. The lagging data series showed the lowest job openings since January 2021 and the lowest job quits since December 2020, reigniting fears that the Fed is behind the curve and will need to cut by more than 25 bps in September.

Ensuing treasury purchases briefly disinverted the 2s10s curve for the first time since August 5, when July unemployment coincided with massive carry unwind after the BOJ’s ‘surprise’ rate hike. As a reminder, 1) the 2022-2024 2s10s inversion is the longest on record, 2) this harbinger typically disinverts 3-6 months ahead of a confirmed recession, and 3) 2s10s normalization precedes all US recessions since 1955.

Intel Brief Outline

• Monitoring US Industry, Labor, Yields

  • Declining Orders Weigh on Overall Index

  • Manufacturing Employment

  • Production Sinks Further

  • Commodity Consequences

  • The Fed’s Lagging Data Feed: July JOLTS

  • Yield Curve Reactions Signal Fear

  • Caution Panic-Driven Curve Normalization

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