US: August ISM implies strong activity but construction spending disappoints - Nomura

Analysts at Nomura note that the August ISM survey of US economy suggests firm domestic demand offsetting trade concerns as it rose to 61.3 in August, above expectations (Nomura: 57.5, Consensus: 57.6), from 58.1 in July.

Key Quotes

“Despite trade uncertainties, the ISM index reached the highest level since May 2004 and points to continued strong activity with broadbased gains in subindices. That said, respondent comments suggest concerns over trade policies remain acute.”

“Expected escalation in trade tensions with China has the potential to weigh on business sentiment.”

“Both production (+4.8 to 63.3) and new orders (+3.2 to 65.1) indices improved notably and contributed to the upside surprise in the headline index in August. Consistent with solid economic momentum, the employment index rose 2.0pp to 58.5, implying healthy hiring activity.”

“Despite the upside surprise in the ISM index, trade concerns remain acute and could weigh on business sentiment and hence, business fixed investment plans.”

“Further, the expected US announcement of additional tariffs of up to 25% on $200bn imports from China (likely in installments) to take effect after 6 September could potentially dampen business sentiment.”