July Supply Management

For July, the ISM manufacturing report continued to retract, but the rate of decline abated substantially, rising 4.1 points to 48.9 from June’s 44.8 reading. Anything below the neutral point of 50 shows evidence of shrinkage, but there is plenty of good news to be found within the report. New orders registered a huge jump, up 6.1 for the month to 55.3, a level some might even consider robust. Production, the only major positive from last month, continued its march into positive territory, gaining 5.4 to 57.9, also a very respectable reading. Order backlogs, up 2.5, hit the neutral 50 point level. Inventories, still quite low, gained 2.7, and are now ensconced at 33.5 points. Even employment had a positive showing, up 4.9 to 45.6, though admittedly still negative. The most worrisome component was inflation as measured by the report’s prices paid element which rose 5 and now resides at 55.0 points. Remembering that this indicator bottomed last December at 32.9 points to just how much better things are beginning to look. While still negative overall, the component parts offer growing support to the green shoots thesis. We’ll see if the equity markets substantiate this trend going into the summer months.  Meanwhile, the ISM’s non-manufacturing report was off .6% to 46.4% (making this the tenth monthly decline in a row) and had very little positive underlying data.  This is especially significant since 80% of America’s 140,000,000 workers are covered by this data.  One component of the report, prices, fell over 12 points, providing strong evidence that slack demand equates to little pricing power by vendors.  Substantiating this obvious sign of weakness was the decline in the business activity index of almost three points as employment fell almost two and new orders were off half a point.