01/04/24 09:13 AM EST

Protracted Manufacturing Downturn Represents Economic Reality

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Is there a more representational chart of today's market dynamics than today's bonus chart? ISM manufacturing vs. S&P 500. The ISM data represents the economic reality of the business cycle, while the S&P 500 represents flow dynamics in the face of deteriorating fundamentals.

The latest ISM Manufacturing PMI data revealed a marginal improvement to 47.4 in December 2023 from November's 46.7, slightly surpassing expectations of 47.1. Nonetheless, the figure marks a 14-month decline in manufacturing activity, the most prolonged downturn since the 2000-2001 period. While production saw a bounce (50.3 from 48.5), areas like new orders (47.1 from 48.3), employment (48.1 from 45.8), and inventories (44.3 from 44.8) continued to contract. Price pressures eased (45.2 from 49.9) despite mixed influences from energy and metal markets. The Supplier Deliveries Index also increased (47 from 46.2), hinting at shorter lead times, which could bode well for future economic conditions.

The protracted nature of this manufacturing downturn really can't be understated. If we start to see the job market weaken, there's your hard landing.

Learn more about the Market Situation Report written by Tier 1 Alpha.