ISM & US Construction Index come in Above Expectations

July’s ISM came in well above expectations at 48.9, compared to June’s reading of 44.8, a reading over 50 would indicate expansion.  The employment index rose to 45.6 from 40.7, while prices paid rose to 55.0 from 50.0.  The growth in the employment index could help alleviate some pressure on this Friday’s employment report, it will be important to keep an eye on Wednesday’s ADP release and the employment component of the non-manufacturing ISM report, released the same day.  New orders, which tends to a forward looking component rose to 55.3 from 49.2 in June.

US construction spending rose 0.3% to US$965.7bn, compared to a Bloomberg consensus of -0.5%.  The gains were primarily due to increased residential and government related construction.  Government construction rose 1.0%, reaching US$321.75bn, the highest level on record.

Overall these results, especially the netter than expected ISM release, are very good news for the US economy.  According to the ISM, “”The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI – the New Orders and Production Indexes – rose significantly above 50 percent, thus setting an expectation for future growth in the sector. The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction. It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering. Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue,”

ISM Breakdown: (Source Reuters)