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July U.S. ISM Manufacturing

08/02/2013

The first few days of any month always seem to bring the most relevant, and market moving, economic data points. This month is certainly no exception. If anything, the relevancy has increased even more now that the FOMC has telegraphed any possible asset purchase tapering is “data dependent”.

The U.S. equities markets (Figure 1) were well positioned on the open to trade to another new all-time high. The overnight better than expected European manufacturing figures provided a solid opening foundation for the markets. Europe is clearly “investable” once again.

  • July Italy PMI (Figure 2) rose to 50.4 from 49.1 in June, and ahead of consensus estimates for 49.7 this month.
  • July PMI Germany (Figure 3) rose to 50.7 from 50.3 in June, and ahead of consensus estimates for 50.3 this month.
  • July United Kingdom PMI (Figure 4) rose to 54.6 from 52.5 in June, and ahead of consensus estimates for 52.8 this month.

About thirty minutes into the start of the U.S. trading session on Thursday, August 1, the Institute for Supply Management (ISM) released its July manufacturing report. The index (Figure 5) reading of 55.4 was well ahead of June’s 50.9 and consensus estimates for 52.0.

The composition of the report was strong throughout with multiple highlights:

  • The production index surged to 65.0 from 53.4 in June, the highest reading for production since May 2004.

  • New Orders climbed to 58.3, while inventories fell to 47.0, placing the “new orders to inventory” ratio at a very favorable +11.3 - up significantly from last month’s +1.4.

  • Just two months ago, the “new orders to inventory” ratio was negative (-0.2).

  • The employment index rose to 54.4 from 48.7 last month, supporting consensus estimates calling for +185,000 on the headline figure of the July U.S. nonfarm payroll report being released on Friday, August 2.

  • Manufacturing (Figure 6) has lost jobs in each of the past four monthly jobs reports; today’s ISM suggests that negative trend will end on Friday with the July U.S. labor report.

Figure 1: S&P 500 Index (SPX), Year to Date
Source: Bloomberg

Figure 2: Italian PMI, 2011 to 2013

Source: Bloomberg

Figure 3: German PMI, 2011 to 2013
Source: Bloomberg

Figure 4: United Kingdom PMI, 2011 to 2013

Source: Bloomberg

 Figure 5: U.S. ISM Manufacturing, 2011 to 2013
Source: Bloomberg

Figure 6: U.S. Nonfarm Payroll Report Manufacturing Sector, Year to Date

Source: Bloomberg

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