The Oct ISM manufacturing index was better than expected at 56.9 vs the estimate of 54, up from 54.4 in Sept and is at the best level since May. New Orders spiked to 58.9 from 51.1 and Export Orders rose by 6 pts to 60.5. Backlogs though fell .5 pt to 46. Inventories fell 1.7 pts to 53.9 from last months highest since ’84 while inventories at the customer level remained lean at 44. Employment rose 1.1 pts to 57.7 but remains below the 6 mo avg. Prices Paid were up a modest .5 pt but to a 5 mo high at 71. Of the 18 industries surveyed, 14 reported growth. Bottom line, the Sept jump in inventories led to concerns about New Orders and today’s # dispels that concern for now. ISM said autos, computers and exports were key drivers of growth as “manufacturing continues to outperform the other sectors of the economy.” While the US economy overall is still rather lackluster, data like today still begs the question of what is the Fed thinking with QE2?
After seeing the upside surprise in the personal spending component in Q3 GDP on Friday, the actual Sept reading was below estimates which means Friday’s figure will likely be revised a touch lower. Sept spending rose .2% vs the forecast of .4% but Aug was revised up by .1%. Because the headline PCE inflation figure rose .1%, REAL spending was just .1%. Income unexpectedly fell by .1% from a sharp .4% gain in Aug but the BEA said the decline “reflects provisions of unemployment compensation legislation, which had boosted the emergency government unemployment benefits in Aug.” Ex these transfer payments, income rose .1% in Sept following a .3% rise in Aug. The Savings Rate fell for a 3rd month to 5.3%, a 6 month low. In terms of driving a sustainable gain in spending it all comes down to jobs and income growth as the access to credit is certainly not what it used to be. In terms market reaction, most of this news was out on Friday.
