Implications: From time to time, the ISM index is a better measurement of sentiment among manufacturers than actual levels of activity. We think July – a month dominated by (misleading) headlines about a potential default on US Treasury securities – was one of those months. As a result, we do not read much into the ISM index coming in well below consensus expectations and anticipate a large rebound next month. Taken at face value, the 50.9 reading on the ISM may be disappointing, but it still correlates with 2.9% real growth according to officials at the ISM. News from the auto sector suggests the supply-chain disruptions due to Japan are dissipating. That was also the message from last week's large drop in initial unemployment claims. Auto production will keep rebounding as inventories are low and getting more cars on lots will generate more sales. In other news this morning, construction increased 0.2% in June and rose 2.5% including large upward revisions for prior months. The revisions were widespread, including home building, commercial construction, and government projects. The rise in June was due to commercial construction, primarily manufacturing facilities, retail shops, and communications structures. We did not go into a double-dip at the start of the year, we are not entering one now, and there is no need for the third round of quantitative easing.
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