Goldman On ISM: Disappointing On Weaker Composition
Goldman's Jan Hatzius continues to be one of the most skeptical people when observing recent economic data. His interpretation of today's ISM is no exception. In the meatnime, the market once again doesn't care about anything than a forced headline number (sub 3% 10 Year be damned).
SA: ISM Survey - ISM Edges Down, but with Weaker Composition; Construction Spending Roughly Flat, From Reduced Base
Released: Monday, August 02, 2010 at 10:00 (New York time)
ISM Edges Down, but with Weaker Composition; Construction Spending Roughly Flat, From Reduced Base
BOTTOM LINE: ISM index edges down less than expected, but composition is weaker than suggested by this small move. In particular, orders and production post larger declines while the inventory index moves up. Construction spending edges up, but not by enough to offset a downward revision for May.
US-MAP: ISM mfg index -5 (5, -1), with 1 point downward adjustment on composition.
Construction spending 0 (1, 0), with 1-point downward adjustment due to a revision in May.
ISM mfg index down 0.7 points to 55.5 in July vs. GS and median forecast 54.5.
Construction outlays +0.1% in June (mom, -7.9% yoy) vs. GS flat, median forecast -0.5%.
1. Although the ISM manufacturing index came in higher than our expectation and the median forecast, the composition was weaker than implied by the modest setback in the headline. In particular, the orders index fell 5 points to 53.5 and the production index fell 4.4 points to 57.0. Meanwhile, the inventory index rose 4.4 points to 50.2. Although this algebraically added 0.9 points to the change in the composite index, the combination of a falling orders index and a rising inventory index is clearly not positive for future growth in manufacturing output. At 3.3 points, the difference between the two is the smallest since February 2009, four months before the recovery got underway. On the basis of this composition, we have judgmentally reduced by one point what otherwise would be a US-MAP reading of zero.
2. The other two components of the index - subindexes for employment and supplier deliveries, both rose slightly (0.8 point for employment, 1.0 point for supplier deliveries). Both indexes are in the 58-59 range, indicating a positive employment trend in the sector and modest upward pressure on goods prices. Export orders were roughly unchanged (up 0.5 point) while the import index fell 4 points, to 52.5.
3. While the median forecast looked for a decline in construction spending, outlays actually rose slightly by 0.1% in June. However, the May figure was revised down significantly by 0.8 percentage points to -1%. Residential construction spending falls in June (-0.4%) while nonresidential spending is up (+0.4%). Private construction spending falls (-0.6%) and public spending increases (+1.5%). Given the sizable downward revision to the May number, we also judgmentally adjust the US-MAP surprise score down by 1 point