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    ISM manufacturing at 11-month high

    The manufacturing index which only a few months ago was flashing recession signals extends its lead to an 11-month high. 

    The index now sits at 53.2 and has enjoyed four consecutive months of expansion, whilst also picking up pace. 

    - Inventories is the only sub-index to contract but has slowed the rate of contraction by 3.5 points after falling to 45 last month. 
    - Employment has crossed above 50 to denote hiring. We used this index to warn of trouble ahead for NFP data at the beginning of the year, to then see the monthly employment change drop below 40k jobs recently. With the employment component now seemingly troughed then perhaps we may see a slight rebound in NFP in the months ahead. 
    - The new orders index, often considered a leading indicator of the ISM (which itself is a leading indicator) now sits at 57, its highest rate of expansion since March and 2nd highest since Dec '14. If New Orders continue to pick up pace, then we would expect to this help support the main index and GDP in the months ahead. 
    - The import and export indices are both on the rise, with exports outstripping imports for a 4th consecutive month. 
    The prices paid index, which assesses the price paid by non-manufacturing organisations for raw materials, sits at 60.5 having decreased the rate of expansion from last month's 63.5. This could be seen as an inflationary signal but this sub-index is the most volatile component of the headline read. Only four months ago it sat at 38.5 and spent the prior 16 months contracting, with an average level of 39.5 over the contracting period.

    The trough in December hit 48.2, its lowest level since June 2009. After spending four months contracting between November to February the composite manufacturing index has picked up pace and has formed a more prominent trough than the one we saw in 2013. 

    When we compare GDP to the ISM index we can see a fairly strong correlation, with the 2013 trough and 2015 trough coinciding with GDP weakness (give or take a quarter or two). So now we see the potential for ISM to rebound we also expect to see a stronger GDP for Q3, in line with FED expectations. 

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