ISM survey shows manufacturing growing at faster than expected pace

07/01/2011 12:46 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The U.S. stock market is in a “glass is half full” mood this morning. How you react to the latest Institute for Supply Management manufacturing index report will tell you where you stand on the half-full/half-empty spectrum.

On the half-full side, the ISM Manufacturing Index rose to 55.3 in June from 53.5 in May. Economists were looking for the index to fall to 51.1, according to Briefing.com. That reading would have been dangerously close to the 50 mark that separates an expanding sector from a shrinking sector. So today’s numbers are a strong vote for the view that the recent economic slump is indeed, as the Federal Reserve keeps telling us, just temporary.

The survey results were an especially big surprise because three out of the six regional Federal Reserve manufacturing surveys fell in June.

As of 11 a.m. New York time the Dow Jones Industrial Average was up 0.93% and the Standard & Poor’s 500 stock index had climbed 0.79%.

On the half-empty side, order backlogs in the ISM survey passed from mildly expanding in May (50.5) to something more than mildly contracting in June (49.) The export sub-index in the survey also fell from 55 in May to 53.5 in June.

The drop in backlogs is likely to indicate a fall off in new orders. If you’re of the half-empty persuasion, you’re now thinking that the July survey could show a drop from June as lower backlogs translates into lower orders translates into lower production.

I have to admit that I think both the half-empty and half-full camps are trying to wring more meaning from a one-month survey reading in what is a very subjective survey to begin with. My interpretation is that the economy is slogging along in a weak growth mode that looks likely to continue for a while.

 

 

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