May ISM: The Good and Bad News

Today's ISM report for the month of May was notable for two reasons - one good and one bad.  First the bad news.  For the fourth month in a row, the report came in below 50, which indicates four straight months of contraction.  Looking at prior periods where the ISM went negative for four straight months shows that it typically remains weak for months to come and has always continued to contract during the fifth month.

Now the good news (or at least the less bad news).  With a reading of 49.6, even though today's ISM report showed an economy in contraction, it was still an upside surprise given the consensus forecast of 48.5.  This is the fifth straight month that the report managed to beat expectations and represents the longest streak of stronger than expected ISM reports in at least 10 years. 

While the weak readings in the ISM are not positive for the long-run performance of the market, the fact that the extent of the weakness to this point has been consistently overestimated helps to cushion the blow.

Comments

[TheSnail]

Yeah, I'm slightly less dead!