This morning's ISM manufacturing report was a disappointment with the sector posting a second consecutive modest contraction:
Still, the employment index remains above 50; traditionally, readings below 50 are associated with a response from the Federal Reserve. This remains one of the indicators arguing for expecting the Fed will continue to stand pat on policy.
Notice that the new import orders index fell sharply:
We are once again flirting with that expansion/contraction line. I interpret this as indicative that the external slowdown is increasingly feeding through to the domestic economy. Not enough yet to trigger a recession, but enough to keep a lid on growth. And that by itself is worrisome given existing anemic growth and the high level of unemployment.
Bottom Line: The global manufacturing slowdown is increasingly washing up on US shores, but obviously not enough to prompt the Fed into action. Unfortunately, the risks still seems to remain clearly on the downside, which means that when and if the Fed moves, they will certainly be behind the curve.