ISM said up, Markit said down

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United States

The ISM manufacturing index for June jumped to 57.8 from 54.9 in May and that was 2.5 pts above expectations. That is the best level since August 2014. New orders rose by 4 pts to 63.5, a 3 month high while backlogs were up by 2 pts after falling by 2 pts in May. Inventories for both manufacturers and customers hovered around 50 give or take. Export orders rose 2 pts, getting back what it lost in May. Employment was higher by 3.7 pts to 57.2, a 3 month high. With the drop in commodity prices, prices paid fell 5.5 pts to the lowest level since November.

Notwithstanding the m/o/m improvement seen above, there was no change in the number of industries seeing growth as for a 2^nd month 15 of 18 said business was better. There was however 3 industries seeing a contraction vs 2 in May. Averaging out the ISM year to date puts it at 56.4, well better than the 52 seen in October but this higher level of confidence hasn’t really been reflected in the actual business activity data. We are still waiting for that to happen.

ISM MANUFACTURING

 

Markit also produced its final read on US manufacturing for June and they don’t see things the same way ISM did. Their index fell to a 6 month low at 52 from 52.7 in May. Markit said “Manufacturers reported a disappointing end to the second quarter, with few signs of growth picking up any time soon. The PMI has been sliding lower since the peak seen in January and the June reading points to a stagnation, at best, in the official manufacturing output data.” While ISM saw a rise in employment, Markit said “The survey’s employment index meanwhile suggest that factories will make little or no contribution to non farm payroll growth in June.” ISM said new orders rose to a 3 month high but Markit said “Forward looking indicators, notably a further slowdown in inflows of new business to a 9 month low and a sharp drop in the new orders to inventory ratio, suggest that risks are weighted to the downside for coming months.” The only thing ISM and Markit agreed upon was that price pressures receded because of the decline in commodity prices.

Bottom line, I guess the truth lies somewhere in the middle but it is quite bizarre reading these two press releases and it seems like they measured two different countries. Likely methodology and seasonal adjustments helps to explain the discrepancy but importantly, don’t just look at the ISM for your measure of the state of US manufacturing. US Treasuries will rely on the ISM more so and its why long yields rose after the 10am data. The 10 yr yield is now above 2.30% at 2.32-.33% and if you remember, that was the low end of the multi month 2.3-2.6% range that we saw for a while.

MARKIT