US ISM drops significantly

US manufacturing PMI dropped to 48.6 in November from 50.1 in October. The new orders index - usually said to lead the overall ISM index - dropped even more to 48.9 from 52.9. The only positive component was the employment component, which rose to 51.3 from 47.6, but employment in the manufacturing sector is not nearly as important as employment in the non-manufacturing sectors. The ratio of new orders to inventories still points to a very moderate increase in production in the coming month.

The weakness in the ISM index is much stronger than in the Markit PMI manufacturing index even though the two indices should measure the same national manufacturing activity. The Markit manufacturing PMI was revised up a tad from the flash estimate to 52.8 in November - lower than in October but still clearly above the important 50-mark.

The US manufacturing sector is still hurting from the strong USD and - as the manufacturing sectors in the rest of the world - from weakness in China and other Emerging economies and in global trade. The non-manufacturing sectors, which are much more exposed to the domestic economy, are doing much better and that is unlikely to change in the near term.

"We believe today's numbers are unlikely to change expectations for a first rate hike from the Fed in a few weeks. The mixed picture of the state of the global economy probably only matters if it is seen as a threat to US financial stability as it may have been the case in September", says Nordea Bank.