US manufacturing PMI falls most since 2008 on China concerns, ISM says

The Institute of Supply Management's manufacturing sector Purchasing Managers' Index dropped from last month's level of 59.3 to 54.1 - its largest one-month decline since 2008 - missing forecasts for a fall to 54.1 by a wide margin.

It was the weakest PMI reading since November 2016.

Significantly, the sub-index for companies' new orders plummeted from a reading of 62.1 for November to 51.1.

A gauge linked to firms' order backlogs also weakened, from 56.4 to 50.0, even as another which tracks the prices paid by firms staged a sharp retreat, sliding from 60.7 to 54.9.

For both the headline index as well as all of the subindices, the 50.0 point level marks the threshold between expansion and contraction.

The sub-index linked to employment held up better, declining by 2.2 points to 56.3.

Not surprisingly, many of the respondents to the ISM's survey noted the impact which uncertainty over the ongoing tariff war with China was having on their respective sectors.

According to one purchasing manager from the Machinery sector: "The ongoing open issues with tariffs between U.S. and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations. We were anticipating more clarity [regarding] tariffs at the end of 2018."

As an aside, in Chemicals it wasn't tariffs that were the main concern, but rather Brexit, as a result of the necessary labeling changes it would require.

Commenting on Thursday's ISM print, Ian Sheperdson, chief economist at Pantheon Macroeconomics, said: "This is grim. The consensus always looked too optimistic, but this reading is at the bottom end of our range of expectations. The details are horrible too [...].

"The story here is that the trade war, coupled with China's underlying slowdown, is wreaking havoc in both countries. This makes us all the more convinced that a meaningful trade deal will be done over the next few months, but the manufacturing numbers will get worse before they get better."

Strikingly, Shepherdson believed the Fed was done with hiking interest rates until the trade spat with Beijing had been resolved.

Nevertheless, neither was he expecting monetary policy to be eased.

"A weak ISM alone will not prompt easings; remember the 2015/16 experience, when the oil price collapse crushed the ISM and the consumer story was much weaker than now but the Fed still hiked, though much less than it had expected."