The Boock Report

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ISM said things are great, Markit said they are just ok = Yields down

U.S. Manufacturing

The September ISM manufacturing index rose 2 pts to 60.8, above the estimate of 58.1 and the best level since May 2004. New orders rose by 4.3 pts to 64.6, the highest level since February. Backlogs grew by .5 pt to 58. Inventories at the manufacturer level though fell by 2.5 pts to 52.5 but only after rising by 5 pts in August. Customer inventories remain well below 50 at 42. Export orders were up 1.5 pts to 57 after dropping by 2 pts in August. Employment was higher by .4 pts to 60.3, the best since June ’11. Prices paid jumped by almost 10 pts to 71.5, the highest in 6 ½ years.

Of the 18 industries surveyed, 17 saw growth vs 14 in August. The only sector to report a contraction was furniture and related products.

Some industries certainly did cite the hurricanes as impacting their businesses but mostly in terms of higher costs, hence the spike in ‘prices paid.’

Bottom line, each of the regional manufacturing survey’s were very good so I wasn’t exactly sure why the ISM estimate was for a modest decrease. Good growth overseas, along with a weaker dollar and hopes for regulatory and tax reform likely all contributed to the manufacturing strength in September. Again though, this is measuring the direction of change, not the degree. Notwithstanding the upside surprise and 13 yr high in this index, US Treasury yields actually moved DOWN. Maybe because of what Markit said.

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The Markit index of US manufacturing for September was basically unchanged m/o/m at 53.1 vs 52.8 in August and 53.3 in July. It got as high as 55 back in January. And this wording from Markit is in stark contrast to the ISM data, “While the headline PMI remained resiliently elevated in September, despite disruption from hurricanes Harvey and Irma, the details of the survey are more worrying. Output growth was unchanged on August’s 14 month low, and translates into stagnation at best in terms of the official manufacturing output data. Firms’ expectations of future output growth also slipped to a 4 month low.” Employment did rise to a 9 month low but as its rising faster than output, that leads to a decline in productivity. Backlogs were little changed m/o/m and new orders fell for the 2nd straight month. Exports “rose marginally.” Input prices jumped at the fastest pace in almost 5 yrs.

Bottom line, it’s quite the difference in reading these 2 press releases from ISM and Markit. The only thing that seemed similar in the 2 was the commentary on price pressures.