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U.S. ISM Manufacturing

12/03/2012

The first day of trading for the month of December greeted investors with a disappointing release of the all-important U.S. Institute for Supply Management (ISM) Manufacturing Index. A 49.5 reading (Figure 1.1) for activity during the month of November was well below both last month’s 51.7 reading and the consensus estimate for 51.5.

 

This is the fourth sub-50 reading in the past six months and the weakest reading since July 2009. The components of the report confirm negative impact from Super Storm Sandy, as well as overall continued manufacturing weakness. The services side of the economy remains stronger than the goods side. Enterprise has retrenched while D.C. debates a fiscal cliff avoidance deal.  

 

Within the report…

  • New Orders fell to 50.3 from 54.2 last month, the weakest reading since August’s 47.1
  • Inventories fell to 45.0 from 50.0, which actually positively expands the ratio of New Orders to Inventories to +5.3 from +4.2
  • Employment (Figure 1.2) fell sharply to 48.4 from 52.1 last month, the weakest reading since September 2009
  • Production rose to 53.0 from 52.4 last month, the highest level since May’s 55.6
  • Prices Paid fell to 52.5 from 55.0 last month

 

Overall, I expect today’s ISM Manufacturing report will have near-term impact on the capital markets. The S&P 500® Index (SPX) (Figure 1.3) has enjoyed 6% appreciation to this morning’s 1423.73 high from November 16th’s 1343.35 low. The probability has risen for a near-term peak in that appreciation. From a purely tactical standpoint, it is prudent to reduce risk exposure after this report and ahead of what most likely will be a disappointing U.S. Labor report on Friday.

 

Friday, December 7, 2012 U.S. Labor Report Expectations

  • Headline: +65,000 to +85,000 (last month: +171,000)
  • Private payrolls: +70,000 to +90,000 (last month; +184,000)
  • Rate:  Unchanged at 7.9%

 

Figure 1.1 U.S. ISM Manufacturing Index, June 2009 to Present

 

Source: Bloomberg

 

Figure 1.2 U.S. ISM Manufacturing Index: Employment Sub-Index, June 2009 to Present

 

Source: Bloomberg

 

Figure 1.3 S&P 500 Index (SPX) Year to Date

 

Source: Bloomberg

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