Financial Professionals


ISM Manufacturing & Nonfarm Payrolls


The month of May has begun with two critical U.S. economic reports:

  1. Yesterday, the Institute for Supply Management released its manufacturing report for April:
    • April ISM manufacturing rose to 54.9 from 53.7 last month (Figure 1)
      • The 54.9 reading is a high for 2014
    • The employment index rose to 54.7 from 51.1 last month
    • The new orders index is at 55.1, while inventories came in at 53.0, keeping that all-important "new orders to inventory" ratio in positive territory
    • 94% of the industries reporting confirmed overall industry growth; November 2013's 83% was the previous high of the past eight months
    • Growth in new export orders for April was also very encouraging at 67%, easily exceeding the period of September 2013 to February 2014 when overall growth was reported in only 33% to 56% of industries
      • March reported at 61% growth
  2. Today, the U.S. Labor Department released its April nonfarm payroll report:
    • April nonfarm payrolls rose 288,000, well above last month's +203,000
      • March nonfarm payrolls were revised higher from +192,000 to +203,000
      • April nonfarm payrolls recorded the strongest month since January 2012's +360,000
    • April private payrolls rose 273,000, well above last month's +202,000
      • March private payrolls were revised higher, from +192,000 to +202,000
    • The unemployment rate fell to 6.3% from 6.7% last month (Figure 2)
      • The unemployment rate is at the lowest level since September 2008
    • April manufacturing jobs rose 12,000 after last month's 1,000 decline
    • Average hourly earnings month on month were flat
    • Average weekly hours worked were 34.5, unchanged from last month
    • The underemployment rate fell to 12.3% from 12.7% last month
    • The labor force participation rate fell to 62.8% from 63.2% last month (Figure 3)
      • That matches November 2013 for the lowest level since 1977
    • Trade and transport rose 59,000, the highest reading since December 2013
    • Business services rose 75,000
    • Education and health rose 40,000
    • Leisure and hospitality rose 28,000

Earnings reports also continued this week, with 374 of the S&P 500® (SPX) companies having reported. Next week another 78 will report. Overall SPX sales growth (Figure 4) stands at +2.10% while EPS growth stands at +5.02%. Profit margins (Figure 5) have moderated from last quarter's 9.55% high mark to now 9.48%.


Both the ISM manufacturing and nonfarm payroll report suggest the impact from the winter weather was transitory and will only temporarily distort GDP as witnessed this past week.

Additionally, given the current evidence, there is no change in my expectation that the first fed funds rate hike will occur 12 to 15 months from now.

Lastly, there is also no change to my expectation that the current quarter presents the highest probability to be a “negative” quarter for the SPX as the 2014 “consensus shakeout” continues.

Figure1: ISM Manufacturing, October 2012 to Present

Source: Bloomberg

Figure 2: U.S. Unemployment Rate, May 2008 to Present

Source: Bloomberg

Figure 3: U.S. Labor Force Participation Rate, Prior 50 Years

Source: Bloomberg

Figure 4: SPX Q1 2014 Earnings to Date

Source: Bloomberg

Figure 5 SPX Q1 2014 Profit Margin to Date

Source: Bloomberg

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.