ISM Non Maufacturing

July 6th, 2016 10:52 am | by John Jansen |

Via Stephen Stanley at Amherst Pierpont Securities:

Well, well, well.  Remember a month ago?  Payrolls stunned everyone to the down side at 8:30 on the morning of June 3.  People may have been inclined to let the shock eventually wear off, but when the ISM non-manufacturing gauge came in much weaker than expected at 10:00 on that same morning, market participants determined that the economy was indeed weakening.  We will have to wait two more days to see what June payrolls look like, but the message from the June ISM non-manufacturing report is that purchasing managers were “just kidding” about May.  Ironically, as Treasury yields press to new lows and expectations of Fed action have been taken off the table for at least 2 years, the U.S. economy appears to be doing all the right things.  GDP bounced back in the spring after a wobbly Q1, labor markets continue to tighten despite an apparent slowdown in hiring (as firms run out of available qualified workers), and the consumer roars on.  Brexit has presented a new set of risks, but there is certainly no indication so far that it will impact the U.S. economy much (the U.K. is obviously a different story, as may be the EU).

The composite index not only recovered all of the ground lost in May but surged even further in June to 56.5, the highest reading since last November.  The June reading returns the gauge back toward the sky-high readings seen for most of 2014 and 2015.  Similarly, the production and new orders components both shot up near 60, reprising levels seen for most of the last two years.  The employment measure had dipped below 50 in May but bounced back to 52.7 in June.  While this is still well below the prevailing range of 2015, it is the second-highest reading so far this year.

The prices index was roughly unchanged at 55.5 in June.  However, as with the manufacturing survey, the supplier deliveries gauge ticked up to 54.0, the highest level in over a year, suggesting that supply chains are beginning to get stressed.  16 commodities were reported up in price vs. 3 reported down in price.  All 3 of the “downs” were food items.  And just to remind Chair Yellen, among the commodities reported up in price were “construction labor” and “labor” (for the 14th straight month), and those two were also reported in short supply (for the third straight and ninth straight month respectively).

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