ISM Manufacturing Index Beats Estimates

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Includes: DBC, DIA
by: Leo Nelissen

Summary

Strong ISM print.

New orders and prices jump while employment decreases a bit.

Apparel, Leather & Allied Products keep disappointing.

Expect dollar strength and commodity weakness after this report.

Almost two weeks ago, I wrote an article which included a graph where I compared the regional Empire State Index and the ISM Manufacturing Index. Empire State hinted a much higher ISM print and commodity prices supported that view.

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Today however, we saw a much stronger ISM. The ISM print came in at 51.8 which is 1.1 point above estimates.

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Growth slowing is having a break with twelve out of eighteen industries in growth territory. Only five industries are contracting.

The list below shows the biggest winners and losers.

Growing

  1. Printing & Related Support Activities
  2. Furniture & Related Products
  3. Nonmetallic Mineral Products
  4. Miscellaneous Manufacturing
  5. Machinery
  6. Plastic & Rubber Products
  7. Food, Beverage & Tobacco Products
  8. Fabricated Metal Products
  9. Chemical Products
  10. Paper Products
  11. Primary Metals
  12. Computer & Electronic Products

Contracting

  1. Apparel, Leather & Allied Products
  2. Textile Mills
  3. Electrical Equipment, Appliances & Components
  4. Transportation Equipment
  5. Petroleum & Coal Products

I was really surprised by the new orders number. Prices also soared back above the 50 level. Mainly, because of the commodity rally which started in February. Employment decreased a bit which was confirmed in today's nonfarm payroll print. Manufacturing lost 29 thousand jobs according to the Bureau of Labor Statistics.

Source: Institute for Supply Management

After the strong print we will see a further strengthening of the USD and lower commodities which could put some pressure on stocks. In fact, that is how we got into contracting territory a few months ago. Rate hike expectations pushed commodities lower and killed a lot of junk bonds. However, it's not all oil as seen below. The Apparel industry is in pain. It is almost consistently the biggest lower in the ISM report.

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Source: BN Capital

During the next two weeks I will use this data to research interesting trades that will be profitable and market neutral.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.