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    ISM Manufacturing: Digging through the data

    US manufacturing broke a 5-month streak to expand for the first time in 6 months on Friday.  

    Whilst the headline figure is the one most traders tend to monitor, it is the numbers within that can provide clues to the direction of the economy further down the track.

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    You can see the alarm bells ringing in previous posts as we watched more of the sub-indices cross below the 50 threshold (which have been conveniently highlighted in red as a visual aid). Of particular concern a few months ago was watching new orders, production and employment all contract one by one which would likely have a knock-on effect to non-farm data and future growth, if the trend is sustained. 

    So to see ISM manufacturing not only expand, but at its fastest pace since December 2014 (2.3 points) it certainly provides a reprieve to the bulls and hawks. Additionally I now have to question if we have just witnessed a bottom like 2012, or if we will meander around the 50 level like we have seen other global PMI's do in recent months. 

    The new orders index, which is often considered as a leading index to the headline PMI, jumped to 58.3 from 51.8 making it the second consecutive month of increased orders. Employment is still a concern for NFP data down the track but we really need to monitor these trends alongside the Services PMI as it accounts for a larger portion of GDP

    All eyes are now on Services data tomorrow where we see both ISM and Markit PMI reads are released. We will then compare them to the manufacturing data set to help access the business cycle. If we can agree the last trough was in 2009 then we are 7 years into the latest one, and within the lower limits of a matured business cycle. This in turn points to a mild rebound before the doom mongers (occasionally myself included) will be back at the table. 

    The Chicago is a broader reading which covers manufacturing and services but of course only accounts for Chicago. It is a more volatile number than the broader ISD read of the US, but is of interest to follow as it does have a correlation with ISM manufacturing and is released a couple of days prior. The Chicago PMI bounced strongly last Wednesday and ISM manufacturing followed suit. Due to the extra volatility it is almost as if the broad ISM read is a moving average of the Chicago counterpart, but is still worth monitoring regardless and could be seen as the ADP ns NFP employment data sets. 

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