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U.S. ISM Manufacturing

08/01/2011

•         U.S. ISM Manufacturing for July was reported at 50.9, well below the 54.5 consensus and June’s 55.3 figure.
•         This evidence supports my fear that late July Washington D.C. ineptitude may have already damaged consumer, enterprise, and manufacturing spending is warranted.
 
The Institute for Supply Management reported U.S. ISM Manufacturing this morning at 10 a.m. Similar to the China PMI, this report has been a leading indicator during the recovery from March 2009 (Fig 1.1).
 
If a second half recovery is to emerge, a resurgence in manufacturing is a critical condition. Today’s disappointing ISM report sets a negative tone similar to August 2010 (Fig 1.2). This morning’s “miss” places ISM perilously close to the contraction/expansion 50 level. In addition, 50.9 is the lowest reading since the 49.0 reading reported for July 2009.
 
Other highlights (or lowlights) within this report
 
•         New orders fell to 49.2 from 51.6, well below the 6-month average at 57.5
•         Inventories fell to 49.3 from 54.1; the 6-month average is 50.3
•         Employment fell to 53.5 from 59.9, well below the 6-month average at 60.3
•         New export orders rose to 54.0 from 53.5
 
Commentary – Although a disappointment and further evidence the economic recovery has stalled, I still do not expect QE3 to be implemented in the form of further FOMC balance sheet expansion. A domestic demand resurgence in China, continued solid earnings, and fiscal policy stimulus remain possible capital market catalysts. Friday’s U.S. Labor report and the S&P 500® Index technical formation (Fig 1.3) are two near-term elements investors should pay particular attention to.
 
 
Fig 1.1 U.S. ISM Manufacturing, 8/31/08 to 7/31/11

Source: Bloomberg
 
Fig 1.2 S&P 500 Index, August 2010

Source: Bloomberg
  
S&P 500 Index, 8/2/10 to 8/1/11

Source: Bloomberg

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