Today's ISM Manufacturing came in at a very healthy and robust number of 61.4 (above 50 shows expansion, below contraction). There is no arguing with the headline number and one of the comments from respondents such as, "our plants are working 24/7 to meet production demands." (Fabricated Metal Products)." There is somewhat of a disconnect though between the many strong manufacturing reports and GDP, employment and other economic data which at a minimum would raise some flags about the true health of the manufacturing sector. One of the respondents did comment as such, "overall demand is off 10 percent." (Plastics & Rubber Products).
Two things have stood out among all of the manufacturing reports, inventories and prices paid and today's ISM is no different. Inventories have begun contracting signaling an end to the inventory build that helped fuel GDP the past seven quarters. Additionally customer inventories have contracted at an even quicker pace. Why would customer inventories contract in the face of growing demand as this report would indicate? Lastly, look at the levels and rate of growth of the prices paid component.
The ISM report had a total of 5 comments from respondents, two of which are mentioned above and the remaining three below. So the ISM number on the surface was strong as expected but there are a number of warning signs within the report.
"Prices continue to rise, while business limps along at last year's pace." (Nonmetallic Mineral Products)
"A continued weak dollar is increasing the cost of components purchased overseas. It is going to force us to increase our selling prices to our customers." (Transportation Equipment)
"We continue to see significant inflation across nearly every type of chemical raw material we purchase." (Chemical Products)
Submitted by Ultra Trading. To read more, please visit - MacroStory.com
