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Tuesday, June 2, 2009

Yesterday's News: ISM Manufacturing

Brutal week(s) of work travel emptied my queue of ready to go posts, hence the delay in posting today / delay in posting of yesterday's ISM Manufacturing release. The good news is my work travel is done... the bad news (for readers) is I am about to do some personal traveling. Hey gotta help the global economy.

Enough of that, lets see what may have caused yesterday's jump in equities. The WSJ reports:

We checked in with Barclays Capital strategist Barry Knapp for his two cents on what’s driving the big bounce in the markets today. Just before the close, the Dow and the S&P were both up about 3%; the Nasdaq was around 3.1% higher.

U.S. manufacturing activity rose to 42.8 in May from 40.1 in April. The increase was more than analysts expected, though the latest reading was still low enough to signal that the manufacturing sector remains in contraction.

But Knapp says that the markets were especially cheered by a non-headline number in ISM figures. The ISM New Orders index actually cracked the expansionary 50 level.

“That going above 50 was a big driver,” Knapp said, of today’s rally.

Looking at the breakdown in the ISM, we do see New Orders above 50, but that's about it. After the massive downturn, it is pretty alarming (though not surprising) that the manufacturing base continues to get worse (below 50 means contraction).

That said, we have seen an "improvement" (i.e. worse, but at a slowing rate) in most areas, with the exception being inventories (at manufacturers and customers alike), and employment.

Source: ISM