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US: ISM report not as bad as expected, but prices again higher

Wed, Jul 2 2008, 07:27 GMT
by KBC Market Research Desk

KBC Bank

The ISM manufacturing survey unexpectedly improved (modestly) in June, coming out at 50.2, which is slightly above the boom/bust level of 50 and compares to 49.6 in May. The rise was unexpected as most regional surveys showed a deterioration of conditions. Looking at the details, new orders (49.6 from 49.7) and production (51.5 from 51.2) were broadly unchanged, while new export orders decreased from 59.5 to 58.5. Supplier deliveries, inventories and backlog of orders increased, while employment deteriorated (43.7 from 45.5). The rise in supplier deliveries looks suspicious to us and may have been due to the consequences of the Mid-West floods. Prices paid, a measure of inflationary pressures, jumped to 91.5 (from 87.0), the highest level since July 1979. This is the first time in five months that the headline indicator moves back above 50, defining expansion, but the underlying picture remains weak, suggesting that we may drop soon again below 50. On the other hand, inflationary pressures remain worrying.

Car sales slumped in June to a 16 year low of 10 million (annual pace) from 10.4 million in May. This happened despite GM offering zero cost lending. High gasoline prices, labour market weakness and restricted lending are the most important factors. The three US manufacturers, more focussed on models consuming much gasoline) where hardest hit with Y/Y losses of 6.3% (Ford), of 15.8% (GM) and 42.6% (Chrysler).

EMU: Manufacturing PMI falls into a contraction

The euro zone PMI came out at 49.2, slightly above the preliminary figure of 49.1, indicating to a contraction. PMI data were especially weak in Spain (40.6), Italy (46.9) and Ireland (44.7), which was new info, while in Germany the figure stays above the benchmark of 50.

In Germany, the number of people unemployed fell 38 000 in June after increasing 4 000 in May, bringing the total number of unemployed to 3.2 million. The unemployment rate slightly decreased from 7.9% to 7.8%. But the details show that the outlook is less positive, with jobs created falling sharply from 23 000 in April to 3 000 in May indicating that German companies are less willing to hire new workers.

Other: Very bad PMI figures in the UK

In the UK, the Manufacturing PMI plunged to 45.8 in June, following a revised 49.5 in May, reaching its lowest level since 2001. Output (43.5 from 49.2), new orders (43.2 from 47.5), new export orders (47.4 from 51.1) and employment (46.5 from 48.8), which are very important sub indices, all decreased sharply. Prices continued its upward trend with input prices increasing from 76.9 in May to 82.1 in June and output prices going slightly higher (62.6 from 62.0). This survey illustrates the current situation in the UK economy and the dilemma for the Bank of England: rising inflation rates and economic slowdown.

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Published on  Wed, Jul 2 2008, 07:33 GMT

Archive

• US: Durable orders rise the third month in a row
  Published On Thu, Aug 28 2008, 07:36 GMT
• US: First signs of stabilization in the housing market
  Published On Wed, Aug 27 2008, 07:23 GMT
• US: Existing home sales rebound, but inventories are rising
  Published On Tue, Aug 26 2008, 07:25 GMT
• US: Q2 GDP at 1.9% slightly weaker than expected
  Published On Fri, Aug 1 2008, 08:16 GMT
• US: ADP employment report beats all expectations
  Published On Thu, Jul 31 2008, 07:44 GMT

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