- The US ISM manufacturing report came in very solidly at 59.0 in August (consensus 57.0) from 57.1 in July.
- The details were very strong too with the new orders index rising to 66.7 – the highest level in 10 years. The production index rose from 61.2 to 64.5, touching the highs from 2011.
- The report also points to a continued strong labour market. The employment index was broadly flat at 58.1, down from 58.2 in July.
- New export orders actually increased to 55.0, from 53.0, so it seems the weakness currently seen in Europe is compensated by strength in China.
- The inventory index increased from 48.5 to 52.0 pointing to some inventory building. The order-inventory balance slipped marginally from 14.9 to 14.7.
- The report is a bit surprising given the softness we have seen recently in core consumer goods spending. There could be different explanations or outcomes of this: (a) inventory build-up and the strong capex orders seen recently could be compensating for softer consumer spending, (b) consumer goods spending could be revised higher or (c) the ISM could come down soon.
- Judging from the comments in the report (see overleaf) it is a combination of the above, as capex sectors generally have upbeat comments whereas consumer sectors see softening.
- Looking ahead, we still expect ISM to moderate from this high level but the data adds to the evidence that the labour market is strengthening. We continue to look for a positive surprise in Friday’s payrolls report – we look for 260,000 (consensus 225,000) (see also Monitor – US Labour Market: Job growth is strengthening, 2 September). A stronger job market would add to the risk of an earlier rate hike from the Fed. We still expect this to come in April 2015.
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