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The Institute for Supply Management ISM Manufacturing PMI still shows expansion, assuming you believe the diffusion index is accurate, but the growth plunged vs last month and vs expectations.

New orders and order backlog are the key numbers to watch. Both are on the verge of contraction.

Econoday Expectations

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The Econoday economists' consensus missed the mark badly this month. The consensus was 57.9 in a range of 56.0 to 59.0.

December's drop in regional reports correctly signaled significant slowing in ISM's manufacturing index, falling more than 5 points to a 54.1 level that is nearly 2 points below Econoday's consensus range. This is the lowest showing for this index since November 2016.

Slowing growth is evident through most of the report but is centered unfortunately in new orders which slowed by 10 points to a 51.1 level that is suddenly very close to breakeven 50. This is the lowest showing for new orders since August 2016 with weakness entirely on the domestic side as one of the few positives in December's data is a 6 tenth rise in new export orders to 52.8 which is respectable for this particular reading. Total backlog orders were unchanged at 50.0.

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Production slowed by more than 6 points to 54.3 with employment down more than 2 points to 56.2. Supplier deliveries improved and cost pressures eased, both consistent with slowing activity. Inventory readings held steady showing a marginal build for raw materials and continued scarcity of finished goods in ISM's sample.

The drop in the price of oil is a clear negative for those manufacturers tied to the energy sector as evident in Monday's manufacturing report from the Dallas Fed. And tariff and sourcing concerns related to China, based on the month's commentary from ISM's sample, are a continuing negative.

With factory data to grow scarce given the closure of the Commerce Department and Bureau of Economic Analysis, the ISM will gain further in importance, and today's results are clearly negative and point to marked year-end slowdown for what nevertheless was a leading sector of the 2018 economy. Watch for manufacturing payrolls and manufacturing hours in tomorrow's employment report for the next indications on the sector.

Global Slowdown

The ISM numbers are in sync with other PMI numbers for Europe, out yesterday.

Once again, these are diffusion indexes with survivor bias, reporting bias, and directional issues where only the direction but not the magnitude matters.

Government Reports on Hold

Due to the government shutdown, the construction spending report, scheduled today, and the jobs report scheduled for tomorrow are both delayed indefinitely.

Mike "Mish" Shedlock