Macro (Sept 2026)
US manufacturing just posted its best 12-month improvement since 2021.
Consumer sentiment sits at 51.7, below the distressed line.
Credit spreads are widening at every rating tier.
All three are true right now.
Here's what that combination actually means.
1. Where we are
First, the phase.
ISM at 55.6 and rising = Late Expansion.
Historically that means P/Es rising but moderating, earnings accelerating hard, and good returns.
It also means we're closer to the top than the bottom.
ISM peaks around 60.
\~4 points of runway left.
2. The manufacturing print
ISM Manufacturing: 55.6
\+1.6 MoM
\+6.6 YoY
That YoY number is the story. Strongest 12-month improvement since the 2020-21 rebound.
New Orders 56.7. Production 58.5. Employment 52.8 — the lagging component finally turned.
This is a real expansion.
3. The bullish detail nobody mentions
Customer Inventories at 40.7.
That's very low. Customers are destocked.
Low inventories = future orders. Combine with Supplier Deliveries at 58.9 (slowing = demand > supply) and
Backlog at 55.0.
There's a restocking impulse coming.
4. Now the problem
Services NMI: 54.1. Expanding.
But look at the internals.
Business Activity 59.1 ✅
New Orders 57.2 ✅
Employment 47.4 ❌
Services is 80% of the economy, and its employment component is contracting.
That's not a footnote.
5. Contradiction one
Businesses say expansion. The consumer says something else.
UMich headline: 51.7 (−3.5)
Expectations: 51.5 (−3.9)
Below 55 is the distressed zone. Expectations is the leading component and it's falling fastest.
Consumer confidence leads S&P earnings.
6. But
Here's what stops me being bearish on the consumer.
Stress shows up in order: credit cards, consumer loans, mortgages, unemployment.
Credit card delinquency: 2.92% and improving
Consumer loans: 1.48% stable
Mortgages: 1.89% stable
The first domino hasn't fallen.
7. Contradiction two
ISM Prices Paid: 71.1
Services Prices: 70.3
CPI MoM: −0.42% (tail-event low)
PPI: −1.26%
Companies are paying sharply more and can't raise prices.
That's not an inflation signal. It's a margin compression signal.
Very different trade.
8. Straight from the source
This isn't theory. ISM commentary:
Electrical Equipment: 5-25% price increases on PCB assembly, 15-45% on bare boards.
"This isn't sustainable."
Fabricated Metal: considering foreign steel because "domestic mills are getting greedy."
Real cost pressure.
9. Contradiction three
While the ISM accelerates, credit is repricing risk higher.
AA: 539bps (was 503)
BBB: 571bps (was 542)
CCC: 1,493bps (was 1,376)
All widening over 3 months.
Note BBB−AA is only 32bps. IG is complacent. CCC is where the stress actually is.
10. The rates picture
10s-2s: +0.40%. Normal, but flattening — was 61bps a year ago.
Meanwhile:
Fed funds 3.63%, flat over 3m
2Y 4.40% (+0.31)
10Y 4.79% (+0.30)
The Fed is on hold while market rates rise.
The tightening impulse isn't coming from the Fed.
11. Why 18 months matters
Trahan's cascade: rates lead leading indicators by \~18 months. LEIs lead coincident by \~6. Coincident lead lagging by \~9.
Rates rose over the last quarter.
Do the arithmetic and the ISM headwind arrives around Q2 2027 — not now.
12. The forecast
Overlay Fed funds inverted and shifted forward 18 months against the ISM.
The implied line plateaus through late 2026, then eases into 2027-28.
Translation: the next 6-12 months still carry the tailwind. The deceleration is a 2027 story.
Unless rates fall first.
13. The tape disagrees
Here's the part that should give any bull pause.
6-month SMID volume flow:
Utilities +29%
Info Tech +13%
Real Estate +5%
—
Consumer Disc −30%
Materials −38%
Financials −63%
Money is leaving every cyclical group. Defensive rotation.
14. Where the strength actually is
ISM industry rankings, August:
Primary Metals +15 (13 straight positive months)
Electrical Equipment +14
Misc Manufacturing +13
Textile Mills +12
Only contracting industry: Chemical Products.
The strength is narrow and it's upstream.
15. The narrow tailwind
Specific comment Machinery:
AI infrastructure buildout "nearing real activation."
Data centre products at full ramp. Semis, power, networking, photonics"booming."
Defence at all-time high.
Then: "medical, industrial & consumer markedly lower.
16. What I’m watching
1. ISM New Orders (56.7) — 2 down months = I go neutral
2. CCC spread (1,493) — through 1,600 is risk-off
3. Next CPI print — determines if the Fed can cut
Bullish triggers need the Fed to act.
Bearish triggers need nothing to happen.
That's the asymmetry.