Manufacturing Index Posts Upside Surprise
The headline for a key survey of manufacturing activity was quite a bit stronger than expected on Monday, but market strategists weren't making too much of it.
The Institute for Supply Management's manufacturing ndex, which was released Monsday at 10 a.m. ET (pdf), rose to 57.8%, up from 54.9% in May. Economists expected a reading of 55.6%. Most components within the index were stronger. The ISM reports:
Comments from the panel generally reflect expanding business conditions; with new orders, production, employment, backlog and exports all growing in June compared to May and with supplier deliveries and inventories struggling to keep up with the production pace.
However, Ian Lyngen and Aaron Kohli of BMO Capital Markets noted that the "prices paid" index dropped. They write:
More interestingly (and potentially policy-relevant), ISM Prices Paid hit the lowest since November at 55.0 Jun vs. 60.5 May and the 58.5 consensus... Overall, while the headline ISM print was strong, the underlying details were less inspired. Treasuries have sold off, but are holding the range.
The yield on the benchmark 10-year Treasury note rose to 2.33%. That's the highest yield since mid-May.
Peter Bockvar of The Lindsey Group has the broader context:
Averaging out the ISM year to date puts it at 56.4, well better than the 52 seen in October but this higher level of confidence hasn't really been reflected in the actual business activity data. We are still waiting for that to happen.
He also notes that research firm Markit, which released its latest manufacting survey just before the ISM, had a very different result. Is index fell to a six-month low.
Bottom line, I guess the truth lies somewhere in the middle but it is quite bizarre reading these two press releases and it seems like they measured two different countries. Likely methodology and seasonal adjustments helps to explain the discrepancy but importantly, don't just look at the ISM for your measure of the state of US manufacturing.