By: Mike Campbell
It looks like the road to recovery in the US will not be a smooth one. Data released yesterday from the Institute for Supply Management for September limped in at 52.6, down by 0.3 on the figure for August. Whilst values above 50 points are indicative of growth, analysts had anticipated a rise to 54. Their disappointment spread to the markets with the Dow shedding 2%; its biggest one day fall since 2 July. The Nasdaq was down by 3% by the end of yesterday’s session.
To add insult to injury, the US weekly unemployment rate was also a disappointment. Largely as a result of the “cash for clunkers” car purchase scheme, August’s consumer spending data showed the highest rise seen in 8 years. The scheme ended on 24 August and US auto manufacturers all reported lower sales figures for September, unsurprisingly. Of the big three US car manufacturers, GM and Chrysler both reported declines of 45% whilst Ford performed well in comparison and only lost 5% of their year-on-year sales for September.
A similar picture was seen for UK manufacturing last month. The Chartered Institute of Purchasing and Supply (CIPS) index dipped by 0.2 points to 49.5 for the month (again, values above 50 points indicate growth) and UK markets also closed lower. Whilst the data is disappointing, it is a marked improvement over the situation late last year. CIPS commented that the underlying trend in their data still pointed towards a recovery. Some analysts believe that the UK will “turn the corner” (others think it will have “bottomed out”!) in the third quarter and return from recession when the economic data for Q3 is finally compiled. The current weakness of Sterling is supporting UK exports as British goods become relatively cheaper than those from, say, the Eurozone. Of course, the flip side of a weak currency is that importation of raw materials becomes more expensive as the buying power of the Pound retreats.