Reality Check


The ISM Manufacturing Report on Business is due out in a few minutes.  The details can be found here.

It’s worth noting that the majority of global ISM reports have come in worse than the previous month and in a contracting state.  Zerohedge article and chart here.

As I mentioned Friday, we are due for a little pull back.  It’s a midline of our rising RSI channel, which doesn’t always matter, but can frequently be good for a short-term trade.  I’ll be watching closely for a reaction off these numbers.

Stay tuned.

UPDATE:  10:05 AM

The US has joined the party and is now doing the contraction limbo along with most of the euro zone countries.  The overall index fell from a modestly positive 53.5 to a modestly negative 49.7.  This is the first official contraction in PMI since July 2009 (readings below 50 indicate contraction.)

Prices suffered a serious setback with a drop of 10.5 percentage points to 37.  Exports, impacted by a higher dollar, are also down significantly.  Put them together, and you get a new order reading that fell  12.3 points from a moderately positive 60.1 to a negative 47.8.

Offsetting the negative manufacturing report somewhat is a better than expected Census Bureau report on May construction spending. Total spending was up 0.9% versus expectations of +0.2% and April growth of 0.3% (revised to 0.6%.)

These are the seasonally adjusted figures  (the unadjusted figures aren’t very much off, for a change.)

My take on all this…  manufacturers like to run near full capacity.  They’re able to use their inventory, plant and equipment and labor force more efficiently and will likely see higher profits as a result.

Most real estate developers I know have to run at full capacity.  They’re leveraged up the wazzu and, like sharks, will die if they don’t keep moving forward.  Debt is usually against a project, rather than their personal balance sheets, so if they can find a bank dumb enough to lend on something — they’re building it.

Given the choice of which tea leaves to read, I’ll go with the ISM report.  Even unjustified overbuilding can lead to positive economic knock on effects.  But, like consumer spending (that continues to rise despite a contraction in consumer income) there’s a real risk that the move won’t be sustainable.  We need a side of substance to go with our form.

UPDATE:  11:10 AM

Now, onto our charts:


Sorry, this content is for members only.

Click here to get access.


Already a member? Login below

Remember me (for 2 weeks)

Forgot Password