May ISM mfr’g solid but what happens next?

May ISM manufacturing was a better than expected 59.7 vs the forecast of 59. It’s down a touch from 60.4 in April but is above 50 for 10 straight months. New Orders were flat but at a high level of 65.7 while Backlogs rose 2 pts to 59.5. Employment rose by 1.3 pts to 59.8, the highest since May ’04 (measures direction, not degree of improvement). Export Orders rose 1 pt to 62, the highest since Dec ’88. Inventories at the manufacturing level fell almost 4 pts to the lowest since Dec and Customer Inventories continued the trend of being very lean, matching the lowest on record dating back to ’97 for this one category as businesses still keep a tight lid on inventories. Overall growth was broad as 16 of 18 industries surveyed reported growth. Bottom line, the data was solid but the $64k question is what happens next as the European economy, bigger than ours, is threatened by a massive credit crunch and China’s growth, while strong, moderates.

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