Inflation Gets A Deflationary Jolt

 |  Includes: DIA, GLD, QQQ, SPY, TLH, TLT, VTI
by: Carlos X. Alexandre

Tuesday’s manufacturing data, according to the Institute of Supply Management (ISM), surprised on the downside, with a reading of 50.8. From Reuters:

The pace of growth in the U.S. manufacturing sector unexpectedly slowed in October, in line with trends in China, Britain and Canada in data reported on Tuesday.

I am not sure about the word “unexpectedly” but I can understand it especially since GDP was “strong,” and the ISM forecast was for an improvement to 52. Looking deeper, “New Orders” actually increased, but “Backlog of Orders” is still contracting. However, “Customers' Inventories” are marked as “Too Low” at 43.5 and could be a source of stability.

Click to enlarge

Click to enlarge

But the big surprise was the “Prices” component, and it delivered a reading of 41 (chart above), dropping significantly from the previous reading of 56. The ISM report summarizes the "Prices" section as follows, while highlighting that only two industries reported higher prices: Furniture and Related Products, and Computer and Electronic Products.

The ISM Prices Index registered 41% in October, 15 percentage points lower than the 56% reported in September. This is the sixth consecutive month the Prices Index has registered below 80% since December 2010, and is the first month of contraction since May 2009 when the index registered 43.5%. The last time the Prices Index decreased more than 15 percentage points was in June 2010, when it registered 57% compared to the prior month's reading of 77.5%.

These are input prices and will eventually find their way into output prices, dependent on consumer demand. And we know how weak that is.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.