ISM Manufacturing downshifts in June

** The ISM manufacturing index moderated by more than forecasts, slowing to 56.2 in June from 59.7 in May. New orders slowed to 58.5 in June from 65.7 in May and employment growth moderated to 57.8 from 59.8. The production index was the strongest area of the report but slowed to 61.4 from 66.6.

BOTTOM LINE: The pace of manufacturing growth appeared to downshift significantly in June as the ISM index fell to its lowest level since December (note, however, that the ISM points out that June’s level of the index has historically been consistent with around 4.8% real GDP growth). Although double-dip fears are the tune of the moment for the markets, we want to underscore that these data remain consistent with respectable growth in the sector. Orders continue to expand—albeit at a slower pace—and the orders index remains above the overall index (which we use as an indicator of future manufacturing growth). Moreover, inventories continue to be liquidated and manufacturers continued to expand employment. On the plus side, inflation pressures eased with a marked drop in the increase in input prices and a slower increase in delivery delays.

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