 | The ISM manufacturing index increased to 49.8 in July from 49.7 in June |
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| Posted Under: Data Watch • ISM |
Implications: The ISM manufacturing index came in below 50 for the second month in a row, suggesting a 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, recent sub-50 ISM reports do not signal a recession and probably underestimate actual business activity in the factory sector. Notably, although the employment index fell to 52.0 it continues to show expansion. On the inflation front, the prices paid index rose to a still depressed 39.5 in July, reflecting the recent steep 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. In other news this morning, the ADP Employment report showed an increase of 163,000 in private payrolls in July, beating the consensus expected gain of 120,000. Based on these data as well as yesterday's Intuit report on small business hiring, we are raising our forecast for Friday's official payroll report to 125,000 nonfarm jobs and 135,000 private. In still other news this morning, the Census Bureau reported that construction spending increased 0.4% in June, matching consensus expectations. Including revisions to April/May, construction was up 1.5%. The gains in June were led by housing, which was up 1.3%. Commercial construction was up 0.4%, led by manufacturing facilities. Total public construction was unchanged in June.
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