Via Millan Mulraine at TFDecurities:
TD SECURITIES DATAFLASH
US: Chicago PMI and Michigan Confidence Disappoint
· The Chicago PMI fell well short of expectations, with the headline index falling to 50.4 from 53.6. This was a far weaker than expected performance, and the drop in the key forward-looking indicators suggests further downside ahead.
· The weak tone of this report points to a relapse in the US manufacturing sector recovery.
· Consumer confidence also soured, with the Michigan confidence index declining for the fourth consecutive month, falling to 89.7, signally further weakness in spending.
The Chicago PMI fell well short of consensus, with the headline number falling to 50.4 in April from 53.6 the month before. The market consensus was for a more modest drop to 52.6. The overall tone of this report was weak, suggesting further downside risks to the manufacturing sector outlook. The key forward-looking indicators were quite weak, with new orders (down from 55.6 to 51.0), order backlog (down from 49.7 to 38.7) and employment (down from 52.8 to 47.5) all declining. Production improved, rising to 54.0 from 53.7, though the new orders to inventory spread, a useful proxy for future production activity, drifted down to 1.4 from 11.6. The overall tone of this report was weak, providing some downside risks to our above-consensus call for a rise in the ISM manufacturing index to 51.8 from 51.5.
Consumer sentiment soured further in April, with the Michigan confidence index declining to 89.7 in April from 91.0. This marks the fourth consecutive monthly decline in this indicator, and while the level of the index remains relatively strong the direction matters, and household confidence continues to head in the wrong direction. To be sure, the exact cause of the rising anxiety among US consumer remains a bit of a mystery. However, what we do know is that the souring in moods appears to be translating in lower spending activity, even as the backdrop for consumption remains favorable. That said, this report augurs poorly for our expectation for a meaningful rebound in personal consumption activity in April.