Tuesday, September 4, 2012

August Manufacturing ISM Disappoints

August manufacturing ISM results were a miss and they could have been what the QE doctors had ordered.  Higher costs due to higher prices, which we had touched on before, were clearly evident in the August report.   The market has reacted negatively to this bad news, but the decline is somewhat contained as the possibility of a QE remains. 
  • ISM came in at 49.6, down from 49.8 in July and below our 50.1 estimate.  The overall consensus was 50.0. 
  • The disappointing combination of sub-indexes that we saw in the July report worsened in August.  Declines in new orders, production, and backlog,were accompanied by increase in inventories. 
  • Along with what appears to be lack of demand faced by manufacturers, their input prices increased significantly according to the prices sub-index.
  • The only so-called bright spot in the report was a slight dip in customers' inventories.  Some inventory replenishment could be in order, but that remains to be seen and is far from being an indication of consistent growth in demand. 

More disappointing news regarding the economy came out this morning.  Construction spending for the month of July declined 0.9% from June, versus an expectation of a +0.5% increase.

US economic growth, if there is any, remains very sluggish.  However, bad news such as the ISM report is met partially with optimism, as hopes for a QE remain strong.  The S&P 500 is down only 0.5%.  VIX is up nearly 8%.  And that QE 'leading indicator', gold front month futures, is up around $8. 

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