 | The ISM manufacturing index declined to 49.7 in June |
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| Posted Under: Data Watch • ISM |
Implications: For the first time since mid-2009, the ISM Manufacturing index came in below 50, signaling contraction in the factory sector. However, it's important to keep in mind that when financial strains, such as recent news out of Europe, push down consumer confidence, it also often pushes down the ISM index as well. In other words, today's below-50 ISM index does not signal a recession and probably underestimates actual business activity in the factory sector. Notably, the employment index fell only slightly, to a still robust 56.6. On the inflation front, the prices paid index plummeted to 37.0 in June, the lowest level since April 2009, reflecting the steep recent drop in energy prices and other commodities. Given the loose stance of monetary policy, we expect the ISM index to soon rebound, both for activity indicators as well as prices. For the time being, though, today's ISM report is consistent with our forecast that real GDP grew at about a 1.5% annual rate in Q2. In other news this morning, the Census Bureau reported that construction spending increased 0.9% in May, easily beating the consensus expected gain of 0.2%. The gains in May were led by housing, which was up 3%. Commercial construction was up 0.4%, led by manufacturing facilities. Government projects fell, largely due to less school construction.
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