Monday, October 1, 2012

Sell-Siders' Usual Underestimation Made Mfr. ISM a Positive 'Surprise'

We find it very interesting that the sell-side experts continue to under-estimate the disappointing modest economic growth in order to make anything look good.  The perfect example of that is the September manufacturing ISM report which was released at 10AM (ET) this morning.  The ISM index came in at 51.5, much higher than the 49.7 consensus.  Of course, as we had mentioned last week, we were a bit more realistic than the sell-siders whose main objectives are to bring back more retail investors and increase transaction volume on their end.  Our ISM estimate was 51.0.  By the way, the Street's estimate range was 48.0 - 50.6.  With such a surprise, the basis of which was again created by the phony sell-siders' estimates, S&P 500 is now up approx. 1%. 
Mfr. ISM (September)
  • September ISM index of 51.5 shows expansion after three consecutive months of contraction (below 50.0).  Again, our estimate and the Street's were 51.0 and 49.7, respectively.
  • Basically every sub-index, except for the producer's inventories, increased from the prior month.
  • While new orders inched up above 50.0, production remained at sub-50.0.  However, given the decline in inventories, combined with improvement in new orders, we will probably see production get over 50.0 this month.
  • We note that the increase in customers' inventories could limit the upside for October's ISM index.
  • In addition, while the imports sub-index did improve, it remained below 50.0 for the second consecutive month.  This could indicate that the increase in production and new orders could be driven more by inventory replenishment on the producers' end, rather than an increase in overall demand.  In other words, again, the upside for the next few months may be limited, making this positive 'surprise' short-lived. 
  • Lastly, the employment sub-index moved up nicely to 54.7 from 51.6.  This should push up the Street's estimate for NFP (due out this Friday), but again, those sell-siders do their best to create that positive 'surprise'.  We will post our NFP estimate later this morning.

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