Non-Manufacturing ISM Comes In Line, Factory Orders Miss: Inventory To Sales Highest Since October 2009

Despite market bull hopes for a collapse in the non-manufacturing ISM (remember: bad news is good news for momentum chasers and the Mandarins of Marriner Eccles) and a repeat of the sub-50 Manufacturing ISM fiasco, moments ago the Institute for Supply Management released the June Non-manufacturing ISM which printed at 53.7, just above expectations of a 53.5 print, and above last month's disappointing 53.1. The New Orders index rose from 54.5 to 56.0 and the Business Activity also rising from 55.0 to 56.5, offset by a drop in inventories from 56.0 to 51.5, a collapse in Imports from 58.5 to 49.5 and, troublingly, an ADP validating decling in the employment index from 52.0 to just above contraction at 50.1. Perhaps the most informative respondent comment was the following: "Healthcare reform and sequestration are having a strong negative impact on business." (Health Care & Social Assistance).

Oh well, a mixed report that is neither overly bullish or bearish, so those hoping for bad news will have to look at the Factory Orders release which posted its second miss in a row, printing at 1.0% on expectations of a 1.5% rise.

From the ISM:

"The NMI™ registered 53.7 percent in May, 0.6 percentage point higher  than the 53.1 percent registered in April. This indicates continued  growth at a slightly faster rate in the non-manufacturing sector. The  Non-Manufacturing Business Activity Index registered 56.5 percent, which  is 1.5 percentage points higher than the 55 percent reported in April,  reflecting growth for the 46th consecutive month. The New Orders Index  increased by 1.5 percentage points to 56 percent, and the Employment  Index decreased 1.9 percentage points to 50.1 percent, indicating growth  in employment for the 10th consecutive month. The Prices Index  decreased 0.1 percentage point to 51.1 percent, indicating prices  increased at a slower rate in May when compared to April. According to  the NMI™, 13 non-manufacturing industries reported growth in May. The  majority of respondents' comments are optimistic about business  conditions. However, there is a degree of uncertainty about the  long-term outlook."

The full ISM data breakdown:

Looking at the employment index alone:

And the always entertaining survey respondents:

  • "The flat sequential sales — which began in January 2012 — are still continuing. At this point, we do not predict any lift in the foreseeable future. We do not see any negatives; it appears that business has reached its 'cruising altitude' and is staying there." (Wholesale Trade)
  • "Sales remain slightly higher than the same period last year, but still below pre-recession sales figures." (Public Administration)
  • "The job order market slowed in April/May. We saw a slight increase in employment due to working down the order/inquiry backlog." (Professional, Scientific & Technical Services)
  • "Business seems to be improving through the second half of the year." (Information)
  • "Fairly stable the last month; overall optimistic going forward." (Accommodation & Food Services)
  • "Healthcare reform and sequestration are having a strong negative impact on business." (Health Care & Social Assistance)
  • "North America continues to improve at a modest rate. Europe is still a problem for global recovery." (Mining)


And while Factory Orders missed expectations, that miss was made worse by the fact that what was built was not sold (yet) as inventory-to-sales ratio hit a post-recession high. if we build it they will buy once again is the matra of US manufacturing...