As discussed yesterday, the Chicago PMI came in weaker than expected and since it leads the ISM Manufacturing survey it should come as no surprise if the ISM Manufacturing survey comes in weaker than expected. The May 2011 ISM released today did print lower than expected.
The ISM Manufacturing survey is a large market mover and today’s weaker report has the S&P 500 down over 1.5%. Granted a couple other economic reports were released today, like the ADP private payroll report, that came in below expectations and they are compounding today’s market move.
As you can see in the chart below, everything in this month’s report is down. One of the key sections in this report is the “New Orders” index.
New orders are the life blood of manufacturing. As new orders goes so goes the index and this is why the ISM was such a huge disappointment this month. New orders were down by such a large percentage that it creates doubt about future manufacturing growth and overall economic growth. However, we must remember that the ISM and “New Orders” are diffusion indices; anything above 50 is still growth. The concern though is these indices are very close to 50 again.
Market Impact
As mentioned above the ISM Manufacturing Survey has a large impact on the equity markets. A strong report leads to positive gains while negative reports have a negative impact on equities. The winning investment from weak ISM reports are bonds and the yield on the U.S. 10 year treasury has dropped below 3%.
Chart courtesy of Stockcharts.com.
Related posts:
