US ISM: A strong month in June, positive signals for the future - Wells Fargo

According to analysts from Danske Bank, today’s ISM report showed that production was strong in June. They also noted that subcomponents of the index, signal strength in coming months and that cost pressures appear to have eased recently.

Key Quotes: 

“The ISM manufacturing index jumped from 54.9 in May to 57.8 in June. Not only was the headline index much stronger than expected— the consensus had centered on a reading of 55.3—but the outturn marked the tenth consecutive month in which the index has been above the demarcation line separating expansion from contraction. It was also the highest reading in the index since August 2014.”

“Moreover, the forward-looking indicators also were strong, suggesting that manufacturing production should continue to expand in coming months. The subcomponents measuring new orders rose from an already strong reading of 59.5 in May to 63.5 in June.”

“Rising commodity prices earlier this year had led to some cost pressures in the nation’s factory sector. However, the “prices paid” subcomponent fell to a 7-month low of 55.0 in June. This drop in the index is consistent with recent behavior in many commodity prices, which have moved more or less sideways over the past few months.”

“The index generally does a good job of telegraphing the direction of change. Therefore, we would look for activity in the factory sector to pick up in coming months.