Manufacturing punches US economy in the face

The wet blanket of the US economy calendar is called manufacturing. While new home sales had been a bright spot, sold at an annual rate of 368,000 in October (up 17% from a year earlier), according to official reports, and foreclosure rates are also at a five-year low, the ISM index is contracting and killing the momentum.

The ISM is an important data because it shows where things are headed. And to what extent American companies are worried about the budget talks between the White House and Congress in Washington. The clock is ticking and Democrats and Republicans keep on blaming each other for the lack of consensus. As long as the fiscal cliff danger is looming, analysts insist business as well as equity markets will remain unsettled.

“Our main scenario, to which we attach a 75% probability, is that an agreement will be reached (…) to extend certain tax deductions and trim only some budget cuts. This will temporarily solve the problem in 2013, although not permanently. This should have a slightly negative impact on the first world economy’s growth, yet we wouldn’t speak of a contraction,” our sources from Bankinter explain.

Superstorm Sandy has also had an impact on the economy, although more regional. In the New York-area, knocking out electrical power and interrupting activity in about 70 percent of businesses surveyed by the Federal Reserve.