The headline ISM numbers were slightly disappointing coming in at 53.5 versus the estimate around 54.8. Honestly though, the 6 month moving average is 53.6 so the report is inline with the trend. Considering all of the other negative news, this report was actually very solid.
The interesting component in the report was the New Orders that jumped to 60.1 from 58.2. In March, the number was only 54.5. Somehow businesses continue to order more products when the economy is slowing.
The other encouraging number is that Inventories remain too low at 46. This number has remained consistently below 50 during this slow expansion the last couple of years. Back in March, it had jumped to 50, but it has begun trailing off again.
Lastly, the Employment component remained high at 56.9 which doesn't match up with the Establishment survey showing only 12K jobs created in the sector.
Not sure how the report calculates the headline number as Prices Paid would appear that a lower number would be a positive while the previous 61 would be negative for Manufacturers.
Regardless, the New Orders stick out as a sign of future strength. The bigger question is where are all these orders coming from?
A PMI in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 36th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 34th consecutive month. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (53.6 percent) corresponds to a 3.7 percent increase in real gross domestic product (GDP). In addition, if the PMI for May (53.5 percent) is annualized, it also corresponds to a 3.7 percent increase in real GDP annually."
Disclosure: No positions mentioned. Please review the disclaimer page for more details.