Great numbers out of the ISM this morning. The 48.9% reading was a 4.2% jump from June and was 2.4% better than analysts expectations. There is little to dislike about the report. There was fairly broad strength. New orders came in at 55.3, production jumped to 57.9, and employment made a 4.9% increase to 45.6%. Inventories continued to jump and will likely continue to add to ISM figures going forward as we bounce off severely depressed levels. Prices firmed indicating that firms are beginning to see some price increases and demand. All in all, this is a very good report and likely solidifies the thinking that an economic recovery is well in place. Stocks like this news, but buying the recovery trade is becoming increasingly risky as any set-backs will be taken very poorly by owners of stocks.
Comments by ISM respondents:
- “[There is concern about] overall health of strategic suppliers — continue to see new suppliers filing Chapter 7 or 11, posing significant risk to supply chain.” (Machinery)
- “We believe our inventories are now at the bottom of this cycle, driving stronger demand for raw materials.” (Paper Products)
- “While our aftermarket business has improved slightly, we are still awaiting an increase in OEM demand.” (Transportation Equipment)
- “No stimulus for manufacturing.” (Fabricated Metal Products)
- “Looking at another round of shutdowns to align supply with projected demands.” (Nonmetallic Mineral Products)
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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