ISM Remains Below 50; ADP Surprises to the Upside

ISM disappointed and remained below 50.0, while ADP was the bright spot.  In addition, construction came in-line with expectations.  The S&P 500 is up less than a point, while VIX is down slightly.  We assume this combinatin is due to the market's anticipation of hearing some magic words from Bernanke this afternoon.  We will apply the ADP results to our NFP model and may provide an update on the NFP estimate later today, if necessary.

ISM Manufacturing (July)

• July manufacturing ISM of 49.8 was below the 50.2 consensus; above our 48.0 estimate. 
• New orders increased slightly to 48.0 from June's 47.8.  However, backlog of orders declined, down 1.5. 
• Unfortunately, given the decline in backlog orders and only a slight increase in new orders, the +5.0 increase in inventories isn't necessarily good news.
• ISM's employment sub-index dipped 4.6 to 52.0 in July.  We note that the report mis-stated the direction of the employment sub-index in its table as "growing", which it obviously is not.
• By the way, prices index increased a bit in July, thanks to the ever-continuing hope of another QE, which drove up oil during the month.
• The ISM figure was not as bad as we expected, but it was bad as it remained below 50.0 (which indicates contraction) and, more importantly, it was lower than economists had estimated.

ADP (July)

• ADP print was 163K, significantly above the 127K consensus. 
• June's change was revised down by 4K to 172K.  We note that in June, while ADP reported 172K, private NFP came in at a mere 88K. 
• Service providing sectors made up most of the net 163K addition of jobs, as usual, with 148K.  Goods producing added 15K.  Goods producing has been volatile while job additions in service-providing sector has been steady. 
• Seeing a more consistent increase in the productions sector, we believe, will be a better sign for the overall economy.
• But again, the headline ADP change was much better than expected.