U.S. ISM below expectations

The ISM manufacturing index of the U.S. came in slightly below expectations at 50.2 in September, down from 51.1 in August. The most forward-looking "new orders" component dropped to 50.1 from 51.7.

The high correlation with Chinese new orders could indicate even more pressure on orders in the coming months (see chart 1). The gap between the new orders and inventory indices - a leading indicator for the headline index - narrowed to 1.6 points, also suggesting continued near-term weakness (see chart 2). Most components of the ISM manufacturing survey dropped and hence the drop was broadly based.

The country's manufacturing sector will probably continue to struggle because of the stronger USD and muted foreign demand, says Nordea Bank.

However, activity in other, larger parts of the economy are stronger, so GDP growth should still be 2½-3% annualised in the second half of the year, in line with the trend pace over the past 1-2 years. Manufacturing accounts for only 12% of value-added of the US economy and 9% of employment.

Today's numbers in itself will probably not have a big influence on the timing of the first Fed hike. The labour market is more important in the near term. Moreover, the service sector is holding GDP growth relatively high.

However, today's numbers are another sign that the manufacturing sector is suffering, not only in the US, but globally. If that trend continues much beyond the coming months then it will obviously have a more significant impact on the outlook for the big central banks, added Nordea Bank.