ISM Beats Expectations On Surge In Inventories

Tyler Durden's picture

While the baffle with BS theme was strong earlier, when the UMich consumer confidence soared, rejecting the plunge in the consumer confidence tracked by the Conference Board, contrary to our expectations, the manufacturing ISM did not do a "China", which last night was reported to have grown and ungrown at the same time, did not drop to disprove yesterday's Chicago PMI and instead soared to 53.1 from 50.2, well above the expectations of a 50.7 print, and above the highest Wall Street estimate. This was the biggest beat of expectations in 16 months, and was driven by virtually every series rising except for Exports and Deliveries, but mostly by a surge in Inventories, which soared from 43 to 51.

From the report:

"The PMI™ registered 53.1 percent, an increase of 2.9 percentage points from December's seasonally adjusted reading of 50.2 percent, indicating expansion in manufacturing for the second consecutive month. The New Orders Index registered 53.3 percent, an increase of 3.6 percent over December's seasonally adjusted reading of 49.7 percent, indicating growth in new orders. Manufacturing is starting out the year on a positive note, with all five of the PMI™'s component indexes — new orders, production, employment, supplier deliveries and inventories — registering above 50 percent in January."

Visualizing the move:

Summary of the January report:

The ISM respondents are at best unclear on what the future holds:

  • "Fiscal cliff, uncertainty in general and EU economic weakness are factors causing our customers to be very tentative with commitments for product purchases in 2013." (Machinery)
  • "Midwest drought impact will be felt at least through midyear, impacting protein, sweeteners, eggs, oils, emulsifiers, etc." (Food, Beverage & Tobacco Products)
  • "Slowing interest in high-dollar purchases reflects continuing economic uncertainty." (Miscellaneous Manufacturing)
  • "Expenditure and investment are expected to remain high in North America in Q1 and Q2, 2013." (Petroleum & Coal Products)
  • "Housing sales are trending upward in light of overall market uncertainty, translating to improving optimism in appliance market." (Electrical Equipment, Appliances & Components)
  • "Still waiting for reaction to consumer tax increases." (Fabricated Metal Products)
  • "Government spending is very low, probably due to the fiscal cliff and the looming debt ceiling." (Transportation Equipment)
  • "Business is improving." (Furniture & Related Products)
  • "The general theme developing in our industry is that we can move suitable volumes. However, profit margin is elusive." (Wood Products)
  • "Overall production volume decreasing. Decrease is led by decline in exports of 10 percent." (Chemical Products)

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DeadFred's picture

The end of the world is near. EURUSD is fast approaching 1.37 which means, which means... STOLPER WILL BE RIGHT! How will we survive this?

SAT 800's picture

By shorting the pair; of course.

KidHorn's picture

Export and imports are both down. Inventories are up. Doesn't look good to me.

q99x2's picture

Russian rocket toasted the US satellite it was carrying to space. That should help boost the future ISM a little.

Cursive's picture

Well, there ya go.  Goldilocks.  This will be spun to explain that the negative GDP was definitely due to delayed restocking (which will be blamed on Sandy/weather).  So, rally on and let the market makers offload ther massive SPY inventory to retail investors.

Itch's picture

Fuck me sideways, that eur/jpy pair can sure move around a bit these days! 120pips straight up without a pullback, in under 30 minutes. Condolences to anyone who left a sneaky short on. 

Orly's picture

Actually, my indicators say that that trade is breaking down pretty quick.

Of course, they have the same indicators, so we'll see...


Quinvarius's picture

The only thing they don't have is gold, with an astounding 43 tons standing for delivery at the COMEX.

orangegeek's picture

The hourly Dow Jones gapped up at 10a.  Casino day today.

EscapeKey's picture

Oh ok, so when inventories are up = bullish, and when GDP misses because inventories are down, that's also bullish.

Good to have that cleared up. I was under the (mistaken) belief that equity markets go both up as well as down. But, as said, I was clearly mistaken.


Cursive's picture

@Escape Key

It's unbelievable.  I can literally count the number of times I watch CNBS, but watched this morning and even Joe LaVorgnia was saying that the Fed was setting the bond market up for a huge shock.  I can agree with him on at least that.  Of course, he also said equities would recover quickly from that shock, but you have to think that once this rally hits stall speed, there won't be much of a floor as support.

SAT 800's picture

Roger that. There was support for the Titanic; but it was a long ways down.

adr's picture

More fucking survey bullshit. Inventories are the public corporation's way of fudging books.If you own a productive business you need to order product, it is how you make money.

In the real world I live in, not the goal seeked data massaged fantasy land of Wall Street, there have been no orders. Inventories left over from last year are higher than ever, and retail isn't buying.

Go to a store and look at the inventory levels.

People need to get a clue and begin to understand how publicly traded retailers game the system. Comps are not based on actual increases, they are based on increases in the percentage of inventory sold. If you have four units of inventory and you sold 2, you sold 50%. If you had 10 units before and you sold four, you sold 40%. Your comparable sale is a 10% increase even though actual sales fell 50%. Nobody in their right mind would say a store did better selling 2 units when they sold four units before. But in the world of corproate accounting actual sales don't matter.

Its all fucking bullshit. I've been to three trade shows since the beginning of January. If the bullshit is to be believed, I should have see booming business. What I saw was a morgue. Boots on the ground can't lie. I mean if you step in shit, you know you stepped in shit. Some guy from a skybox can say "Don't worry folks, it was just mud." But you stepped in it, and you can smell shit.

Never One Roach's picture

Retail is dead. Only stuff that moves is  disocunted 90%. Plies of clothes clutter the racks and boxes at dept stores. Even the head of Ralph Lauren in Asian said they are mmoving 25% of their manufacturing out of China to reduce costs but profit margins are paper thin. He was very pessimistic abot futre sales saying no one is payng the higher prices anymore.

JR's picture


It’s central planning; the counterproductive heavy hand of Ben driving the economy into the wall. He has goofed up the free market gear that engages the omniscient information that determines distribution and the relative value of purchases to all other things – price. Thus, distortions are abounding, stores are closing, market functions are slowing, the profit motive has failed, distribution is in havoc and consumers are in limbo.

Bernanke’s attempts to force growth by faking the stock market with booms and busts to make good the insolvency of his ugly offspring, the too-big-to-fails, has resulted in an unsound currency, currency wars, the disruption of American labor, the impoverishment of many savers and wage earners and home owners, a malfunctioning consumer and labor base, and stagnated growth.

And, now, the lies on retail.

And another signal required by a self-regulating economy, profit and price as a guide to business viability, is forgone.

John Montgomery, paraphrasing Hayek, observed: “Planning in a society consciously directed from the top could never begin to utilize all the knowledge and energies bound up in the countless individuals who make up the community. Human resources will waste away while all await their marching orders.” Couple that with fraud…

Never mind that Bernanke gets his marching orders from Keynes whose one and only solution to all the failures of Utopian Socialism to fuel demand was inflation – QE and more QE and QE to infinity.

yogibear's picture

Need to start building ghost towns to boost activites, just like the Chinese. Bubble Bernanke and the Fed can buy infinite debt with infinite money.

Krugman can be involved with minting his trillion dollar coins. A real Ponzi fest.

Let the games continue!!!!


Dan The Man's picture

LMAO...Funniest Shite I've read in a while. TY

SAT 800's picture

Wow. Inventories. they'll come in handy. create more watchman jobs for the warehouses.

SAT 800's picture

I remember when Cessna built so many small aircraft in one year; which turned out to be "not such a great economy year"; that you could find pictures of airfields filled with Cessnas that belonged to dealers and FBO's covered in dust and pigeon shit; big fields of them. Optimism isn't "always" the right answer.

RunningMan's picture

Someone please explain all of this data to me. I'm in NY, and business has been *dead* since August. Workers in service industries saying to me that they haven't seen a January this slow since 2008/2009. I have multiple family members unemployed (post-grad educations). And yet the market is hitting highs, and there is this bizarro optimism in the MSM.  I am truly and completely befuddled. This doesn't feel like the beginning of a recovery, it feels like there's a party somewhere and I wasn't invited. I know I am echoing other posters here, but it is truly mystifying and I need some other reads from folks - is this part of the ongoing propaganda, or the start of a true recovery?

JR's picture

In answer to your question, Doug Casey in an interview with The Gold Report posted today on Lew, puts it this way: “No one in the mass media and no politician today is willing to say that the king does not have any clothes on.” 

Here’s a take from the interview:

DC: Most of the information that people get about what is going on comes from the popular press and, at this point, the popular press is almost the fifth branch of government – after all the agencies, which have become the fourth branch of government.

As for things improving, yes, things seem better because we're not actually in the middle of chaos. Well, actually we are, but only because it's the eye of the hurricane. Those trillions of currency units that have been and still are being created make people feel more prosperous than would otherwise be the case.

I have no trust in the unemployment figure. If it were still calculated as it was before 1980, unemployment would be between 13% and 19% today. I have no more confidence in the inflation figures issued by the US government than I have in the inflation figures published by the Argentinean government.

It is in the government's interest to keep those reported numbers as low as possible, in part because payments on things like Social Security are adjusted to inflation. In addition, people in government think the economy depends more on psychology than reality, and no one wants to set off a panic. I suggest people panic now and beat the last minute rush. …

TGR: In the On 2013 conversation, you talk about the bond market, saying, "We are approaching the absolute peak of the bond bubble…

DC: This is another reason why I think 2013 and 2014 will be so turbulent. At this point, it appears interest rates are at an all-time low. Bonds are in a bubble. And low rates encourage people to borrow – not save. But saving is absolutely critical – and as much as possible – because it's proof that an individual or a society is producing more than it's consuming. When interest rates start going back up, the face value of the bonds will collapse. A lot of individuals and a lot of governments cannot crack their monthly interest nut at low interest rates. How will they cope with high interest rates?

This bond bubble will be much more serious than the stock market bubble, especially because absolutely everyone is buying all kinds of complete junk today that offers a 2% yield. This will be much more serious than the tech-stock or real-estate crashes. The money markets are much bigger.

I pity those who are reaching for yield now. Instead of risk-free return, they're getting return-free risk.

RunningMan's picture

Thank you JR. I suppose it is reassuring to know it isn't just me and that others see peculiar things afoot as well. I just had this cognitive dissonance when someone just this morning says "things couldn't be worse", and the headlines are screaming DJIA 14k. Good luck everyone. I think this can go on a lot longer, but I'm not sure how it will unfold.

JR's picture

It’s significant that MarketWatch, clearly one of the cheerleader websites for the banker economy, has featured several columnists over the past few days warning of an oversold equity market, numbers nearing a reset and a pattern suggesting a coming market drop.

Marc Faber said yesterday that the central banks are going to get punished by the markets for their extensive monetary easing. He warned that the “uneven flow of money could prompt a collapse in the bond market and lead to a stock bubble.” He says that “regardless of what the markets do near-term, a correction is overdue.” On January 15th, in an interview with Peter Schiff, Faber predicted the upcoming recession will be worse than 2008.

It helps to know that this could be coming; there’s enough of the propaganda on the other side and the market shills I heard this morning are telling incredible lies – it’s hard to believe them.

Inflation, the favorite technique of deficit financing, is killing American productivity; reducing the real earnings and savings of millions of people; older retirees and young people are suffering terribly while the bankers and deficit spenders hide behind a media wall of silence. This can’t continue. There are countless victims of Bernanke's monetary polices; in anguish, suffering the immorality from lack of congressional represenation to defend their right to the fruits of their labors.

Your anecdotal scenarios can be repeated by most everyone on ZH, including me. I predict collapse is coming soon and a beginning of rebirth sans the Fed. It must if Americans are to remain free.

God speed!

NitneLiun's picture

So Inventories are increasing at a faster rate than New Orders and Production. Doesn't that simply mean that manufacturers are producing more than they can sell? Tell me if I'm reading these numbers incorrectly.