U.S. ISM Manufacturing
The month of March begins with a gentle reminder for investors not to become enamored with the “need for speed” – heavily shorted names that are leading the advance in the S&P 500® Index, such as Sear’s (+116% year to date) or Netflix (+57% year to date). Both global and domestic growth are accelerating but not at a pace that suggests allocations to such high-beta assets.
Be invested, with a suggested focus on energy, corporate bonds, technology, consumer names and select low-beta small caps. I still expect U.S. Treasury yields (Figure 1.4) and German Treasury yields to rise and support these suggested assets.
This morning’s ISM Manufacturing (Figure 1.1) report is a mild disappointment in contrast to 2012’s manufacturing reports to date; the ISM headline figure of 52.4 is below both the 54.5 estimate and last month’s revised lower 54.1 reading.
Additionally, construction spending (Figure 1.3) was also surprisingly weak, declining -0.1% after last month’s +1.5% rise, and below expectations for a +1.0% figure this month.
I would expect economists to slightly revise lower their estimates for Q1 GDP, possibly below 2% by a touch.
Let’s take a look at the important ISM internals:
• New Orders (Figure 1.2) fell from 57.6 to 54.9, suggesting inventory rebuilding is moderating
• Prices Paid rose from 55.5 to 61.5 as rising resource input costs are now present and challenging
• Employment Index fell from 54.3 to 53.2
• Export orders rose to 59.5 from 55.0, a favorable condition
• Inventories were unchanged at 49.5
Figure 1.1 ISM Manufacturing Index, March 31, 2011 to Present
Figure 1.2 ISM New Orders, March 31, 2011 to Present
Figure 1.3 Construction Spending, March 31, 2011 to Present
Figure 1.4 U.S. 10-Year Treasury, July 4, 2011 to Present
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