The ISM manufacturing index came in better than expected in September. The 51.6 reading was a full point better than forecasts of a 50.5 reading. The conventional wisdom prior to the release was that manufacturing is flat or possibly could see contraction during the month as regional manufacturing indices continue to be negative. Therefore, this report certainly surprised on the upside and shows that manufacturing sector actually grow at a faster clip in September, flying in the face of that conventional wisdom.
The news should should help equities today and as a result risk appetite, which incidentally means that the US dollar may be weaker against higher-yielding currencies, especially the commodity bloc currencies - the Australian dollar, the New Zealand dollar, and the Canadian dollar. The Canadian dollar which is quite dependent on trade with its southern neighbor may be the biggest beneficiary from that group.
Looking at the internals we see that new orders remained at 49.6, in contractionary territory, however production rose to 51.2 from August 48.6 a gain of 2.6 points. Also, employment rose 2 points to 53.8 from 51.8. The backlog of orders sub-gauge slid quite sharply to 41.5 from 46.0, though exports rose to 53.5 from 50.5. Therefore, overall its a bit of a mixed report as production, employment, and exports rose, but backlog of orders fell which could mean weaker production in the months ahead, and new orders continue to be below the 50 level.
Construction Spending Climbs
In another surprise we saw construction spending rise 1.4% for the month of August which beat expectations of a small declined.
The construction sector has been under pressure for, pretty much years now, and any positive signs there are a welcome surprise. The report also extend the trend we see in construction spending, which is smaller and smaller decreases, and now a move into positive territory.
Chief Market Analyst