IB Net Payout Yields Model

Future Stat of the Week: ISM Non-Manufacturing on Tuesday

The ISM Services Index is set to be reported on Tuesday and will be very crucial to the market direction. According to Bloomberg economists expect a whopping bullish reading of 55. Are they serious? The markets are down some 17% and the ISM Services will only fall slightly from the 55.4 in May. Sure July could easily fall off a cliff, but if June is still as strong as a 55 then I don't understand the fears in the market. What gets me is if the number comes in at 54 and the market acts all surprised. To us, even a 54 would be bullish and indicative that the selloff was unwarranted.

The consensus range is from 53.5 to 56. Take the low end of the range and don't act surprised. After all the only way to a double dip is for this index to fall consistently below 50. If June doesn't even drop below 54, this economy will need another shock beyond Europe or BP or the China slowdown.

Market Consensus Before Announcement
The composite index from the ISM non-manufacturing survey in May continued well into positive territory, coming in at a very solid 55.4 for the third month in a row and indicating a moderate rate of growth. Employment finally crossed above the breakeven point of 50 for the first time this recovery, but just barely at 50.4 for a 9 tenths gain. The 50.4 indicates, based on this report's methodology, a net gain in hiring. We could see another gain in the composite in June as the May new orders index posted at a healthy 57.1. This is down from 58.2 in April and the recent high of 62.3 in March but is still quite positive, indicating net growth. More recently, the Chicago PMI remained strong in June but showed signs of deceleration, coming in at 59.1, compared to 59.7 in May. The Chicago PMI is somewhat related to the ISM non-manufacturing index since it covers both non-manufacturing and manufacturing.

Edit 10:25AM: ISM came in at 53.8. Basically in line with our expectations and clearly in line with market expectations as the market rally continued. It appears that the market has finally come to grips that slower growth doesn't mean a double dip. The ISMs averaged in the mid 50s for June providing for very solid growth if maintained.


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