Financial Professionals


U.S. September ISM Manufacturing


Tuesday morning, October 1, the Institute for Supply Management released its September factory index. For those of you who will read my Q4 playbook “Two Plus Two Equals Four,” I cite this release as highly important to the path of the S&P 500® Index (SPX) over the coming months. Historically, there is a high degree of correlation between the trajectory of the SPX and the U.S. ISM manufacturing index.

September ISM reported at 56.2, ahead of August’s 55.7 and consensus estimates for 55.0. It is the strongest ISM reading since April 2011.

Keep in mind, manufacturing experienced a soft patch earlier this year as sequestration cuts and the fallout from the fiscal cliff moderated manufacturing growth. Therefore, this report is encouraging news for both the U.S. economy and risk asset appreciation.

U.S. ISM Manufacturing Prior 4 Quarters

Q3 2013

Sept. 2013


Aug. 2013


July 2013


Q2 2013

June 2013


May 2013


April 2013


Q1 2013

March 2013


Feb. 2013


Jan 2013


Q4 2012

Dec. 2012


Nov. 2012


Oct. 2012


Source: Institute for Supply Management

September ISM Manufacturing Internals
  • The “new orders to inventory” ratio did moderate to +10.5 in September from +15.7 in August. However, that ratio remains firmly in double digits and above the six-month average of +7.4
  • The employment component rose to 55.4 in September from 53.3 last month, above the six-month average of 52.0

Not surprisingly after the index release, the SPX (Figure 1) traded remarkably strong throughout the remainder of Tuesday’s session despite Monday evening’s U.S. non-essential services government shutdown. That show of strength provided some much needed stability to the SPX, which had been correcting lower from its high for the year of 1729.86 on September 19 to its low of 1674.99 on September 30.

The absence of FOMC tapering initiation at its meeting last month took many, including myself, by surprise. Tuesday’s ISM report is not the type of evidence consistent with continued “extraordinary measures” by the FOMC. Fortunately, U.S. Treasury yields (Figure 2) traded only modestly higher in the wake of the ISM release.  Continued stronger-than-expected economic evidence such as the September ISM will reintroduce Treasury-selling pressure even before the FOMC officially announces the initiation of asset purchase tapering.

Figure 1 S&P 500 Index (SPX), 2013
10-2 Terranova 1.1
Source: Bloomberg

Figure 2 U.S. 10-Year Treasury Yield, July 1, 2013 to October 1, 2013
10-2 Terranova 1.2
Source: Bloomberg

Past performance is not a guarantee of future results.

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