ISM Update

A fund manager of my acquaintance — who has been short and is just killing it lately — writes in:

NYT:  Stocks
bounced around on Tuesday but were decidedly down at midday, as investors
weighed a strong report on the manufacturing industry
against concerns
about pricey oil and ailing banks. (emphasis added).

Cramer liked that report too, said it provided evidence that
we’re not going into a recession.

Do these people read the
reports?  New orders, down. Employment, down. Backlog,
down.  Inventories, up. Prices paid, at a multi-year record. 

Money quote from the ISM bossman: “When viewed from the
manufacturer’s perspective, they are experiencing higher prices for their
inputs while demand for their products is slowing.’

I was going to take apart ISM (a/k/a Chicago Survey of Purchasing Managers, or PMI) this morning, but Mike did such a good job, there’s no need for me to even bother:

ISM is up, but it isn’t good new


See also:
Automakers Worst Month Since 1992

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What's been said:

Discussions found on the web:
  1. Bob_in_MA commented on Jul 1

    The biggest jump was in the category “customers’ inventories,” from 47 to 55. And the market and Cramer see that as a good thing?

    In the short term, both the market and Cramer may be fools. But in the long run, Cramer will likely stand alone. ;-)

  2. Michael Donnelly commented on Jul 1

    If the popular press or general population gets fooled by the headline that’s understandable, but the pros?

    Either they’re being lazy or something worse…

    Barry, Thanks for the link and props. Very classy of you.

  3. David Rosenberg commented on Jul 1

    ISM back above 50 for first time this year

    The ISM manufacturing index came in at 50.2 in June up from 49.6 in May, above
    consensus and ML expectations. The numbers continue to tell us that the weak
    dollar and international demand is still supporting the manufacturing sector, while
    higher costs are becoming increasingly a challenge for manufacturers. Indeed,
    prices paid shot up to 91.5 from 87.0, which is the highest since the late 1970s
    which prompted one manufacturer to say that ‘the commodity bubble is killing
    profitability’. Production remained in modest expansion at 51.5 in June (was 51.2
    in May). However, the forward looking new orders component held steady at 49.6
    in June and the sizable 58.5 read on new export orders suggests that domestic
    orders remain extremely soft. Employment was also extremely soft with the index
    at 43.7 (lowest since May 2003), not surprising that businesses are cutting labor
    costs given the intense commodity price pressures they are facing.

  4. Steve Barry commented on Jul 1

    GM sales down 18%…CNBC calls the numbers fanatastic and eye opening.

  5. Kelly Evans commented on Jul 1

    Reasons Not to Get Too Cheery About Manufacturing Data

    It’s an all-too-familiar scenario: the first piece of data released this month, a report on manufacturing activity from the Institute for Supply Management (ISM), beat expectations. Markets are up! Fears are abated. Perhaps the worst is over?

    Not so fast. The ISM report similarly beat expectations in June… and May… and April… etc.

    May’s sunnier-than-expected report released on June 2 was especially misleading as it prompted analysts to speculate perhaps the worst of the current economic mess had passed — only to get slapped in the face by the government’s employment data at the end of the week showing the unemployment rate soared to 5.5% from 5.0% in May and net payrolls declined for the fifth month in a row. By the end of the month, consumer confidence had hit its fifth-lowest level in 52 years, crude oil topped $143 in trading and the stock market turned in its worst monthly performance since the Great Depression.

    The apparent discrepancy not only reflects the manufacturing sector’s decline in being a bellwether of the U.S. economy but also the sector’s boost from foreign demand as the falling dollar continues to make U.S. goods cheaper abroad. Last month, Capital Economics said the ISM’s May report (which came in at 49.6 for May, just under the 50 threshold that indicates growth) meant it “increasingly looks like the worst case scenario of a severe recession has been averted.”

    This time around, even if analysts are cheered, economists may be more wary. Joshua Shapiro, chief U.S. economist at forecasting firm MFR Inc., said that while today’s ISM report (at 50.2) was the first month of growth after four straight months of contraction, “an increasingly constrained consumer, deepening woes for the housing sector, and a degree of unwanted inventory accumulation… will all weigh on overall manufacturing output, which we expect to remain weak for some time.”

    And finally, although the overall figure is back (however slightly) into growth territory, the prices-paid component soared to its highest level since July 1979. Should be an interesting month

  6. Steve Barry commented on Jul 1

    CNBC keeps saying Ford sales down 19%, GM down 8% from last June…why does Reuters say down 28% for Ford and 18% for GM??? Has CNBC resorted to lying?

  7. me commented on Jul 1

    High gasoline prices and a weak economy took a toll on U.S. sales of Toyota Motor Co. and Ford Motor Co. vehicles in June, with Toyota reporting a 21.4 percent decline and Ford dropping 27.9 percent.

  8. patfla commented on Jul 1

    How about a possible anecdotal counterfactual to at least consider?

    I have an investment in NOV: National Oilwell Varco. A large oil services firm (the two biggest are Halliburton [boo] and Schlumberger).

    NOV doesn’t make the rigs – it makes the equipment that goes into and onto the rigs both during exploration and production. In particular, state-of-the-art stuff such as for the ‘floaters’. The deep water rigs that are actually ships that are kept in position by a combination of GPS and ‘thrusters’ in the ship (trimming its position in realtime).

    I ought to look this up. NOV may also be involved in the very special (expense and sophisticated) equipment that goes into ‘horizontal’ drilling. Which, for example, is what’s finally opening up (maybe) the Bakken Formation (look it up) here in the lower 48. A field (or set of fields) containing several _billion_ barrels still here in the lower 48 – yes, it’s true. How will recoverability fare? Let’s hope well, because the oil itself is actually sweet light crude that requires a minimum of post-processing. Which, among other things, nowhere near the environmental impact (or energy inputs) that Athabascan tar sand crude requires.

    Anyway, I think NOV’s order backlog is now on the order of 2 years (!). So production is being ramped up massively and even if that (very expensive) equipment is sitting briefly (e.g. at the time of the survey) on the equivalent of customers’ ‘shelves’ (however defined in this case) – well it could weigh substantially into the balance. Shall we say.

    As we look into the details of the details (I work for a finance firm and in some sense it’s part of my job to find interesting, new and valuable details within the details), we may find the ‘Inventory’ breaks out into a bunch of interesting sub-categories.


  9. Steve Barry commented on Jul 1

    GM sees housing hitting bottom in 4Q…I’m at a loss for words on that one.

  10. Steve Barry commented on Jul 1

    I found some words…since GM, which knows nothing about housing, is so horribly wrong, their forecasts must be way too high.

  11. ChrisG commented on Jul 1

    @ Steve Barry – GM’s sales were “fantastic” at minus 8% “adjusted for selling days”, ie. there were only 24 selling days in June ’08 versus 27 selling days in June ’07, so by some mathematical magic, -18% turns into -8%. I know what you’re thinking – Say Wha??? What the hell is a “selling day” and who is it that comes up with these figures anyway? How could there possibly be 27 in June last year unless they counted one of the four Sundays? And how could there be only 24 in June this year unless they decided to scrap a Saturday or something? Fishy figures.

  12. ReturnFreeRisk commented on Jul 1

    The ISM composite is a combination of production, new orders, export orders, inventories and supplier deliveries. The rise in composite (in June) is due largely to higher inventories and higher supplier delivery index (which actually denotes slower deliveries – ISM said the materials sector is experiencing slow deliveries). In other words, the headline is BS. Employment and prices do not figure into the headline composite.

    CNBC is headlining and flashing year over year numbers for auto sales instead of the more dire monthly change numbers (they usually do the opposite). Pick the numbers that look better is a mantra at CNBC – aka, they are not dumb; just disingenous.

  13. john_doe commented on Jul 1

    Speaking of data. ADP is coming out with their bogus job growth #s tomorrow. I asked my friend Ali_Iraqi if he is the one giving the false ADP #s. He said, “No, not me. I only do false WMD and GDP reports”, the other Ali gives the false ADP & NFA #s.

    Sheik $$$

  14. fallon commented on Jul 1

    “Do these people read the reports?”

    This is television Barry. No one whom lives or dies by television actually reads.

    Your literate presence on the tube is always a jarring reminder of how illiterate most everyone else is.

    Must make you an elite or somethin g.

    What next? Just don’t go asking the tele-rabble to READ a E.L. Doctorow keynote address or something like that. Come on man, layoff!

  15. DL commented on Jul 1

    BR @ 1:00 P.M.

    “Cramer liked that report too, said it provided evidence that we’re not going into a recession”.

    It’s hard to get a read on what Cramer’s really thinking. He refuses to suggest any short positions, making the argument that short sellers’ losses are unlimited. (Apparently, he’s never heard of a stop loss).

    Given that he won’t recommend any short positions, and won’t recommend any commodity ETF’s, he’s probably hoping that the bear market ends before his show gets cancelled.

    (At least on “Fast Money”, they’re willing to recommend a short position or a commodity ETF or a put option once in a while).

  16. Mike in Nola commented on Jul 1

    Best recession indicator is that Starbucks is closing 600 stores and laying off 12,000 people. Yuppies got no money.

  17. Simon commented on Jul 1

    Great! Starbucks coffee sucks!

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