ISM National Manufacturing Index Better Than Expected

The Institute for Supply Management reported on Friday that activity from the country’s manufactured sector was unchanged in July.

The Purchasing Managers Index (PMI) which as an index reflects the information extracted through surveys to more than 400 purchasing managers from around the country – came in at 50%, down from 50.2% in June. Resulting in a negative 0.2 percentage points change. The consensus/expectation by analysts was for a 49.0 drop.

Starting with New Orders as one of the five important sub-indexes of PMI, the component registered at 45% in July, 4.6% points lower than the 49.6% in June.

– Production Index, as the most important reading — increased to 52.9% in July, up 1.4% from the 51.5% reported in June.

– ISM’s Employment Index registered 51.9% in July, which is an increase of 8.2% when compared to the 43.7% reported in June.

– The Supplier Deliveries Index registered 55.1%, which is the same rate as was recorded for the month of June.

– Manufacturers’ inventories decreased in July as the Inventories Index registered 45%, posting a 6.2% negative from the 51.2% reported in June.

– New Export Orders Index lost in July 4.5% when compared to June’s index of 58.5 percent.

According to the Institute for Supply Management, when calculating the relationship between the PMI and the overall economy from January through July — it indicates that the average PMI which comes in at 49.4%, corresponds to a 2.6% increase in GDP. In addition, if July’s 50% PMI is annualized, it corresponds to a 2.8 percent increase in real GDP annually.

Bottom line: given current economic conditions — the manufacturing sector is clearly holding up much better than generally perceived. Today’s ISM report, clearly indicates a US economy not even close to being in recession. In fact, the economy re-accelerated in the 2Q’08, which is the underlying statement of this ISM report. We still hold the view that the real GDP rate should continue expanding close to a 3% annual rate.

Meanwhile, ISM Prices Paid Index came in at 88.5 and above the 88.0 consensus forecast. Needless to say, we have yet to see the inflation rate peak. The inflationary pressures continue to gain momentum while significantly impacting the domestic price movements. High inflation unfortunately, will continue to persist as an economic story for a long time.

In a separate report, construction spending decreased by 0.4% in June following an upward revision to May, currently 0.0% after initially being reported negative -0.4%.

Nonfarm payrolls fell 51,000 in July – which is less than the 75,000 decline consensus, marking this way a 0.04% drop on a base of 138 mln. The July unemployment rate hit 5.7% from 5.5% a month earlier.

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About Ron Haruni 1067 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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