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The ISM Manufacturing report beat expectations. According to analysts at Wells Fargo, improvements were seen in most of the subcomponents “but a sustained divergence between survey data and harder measures like output and orders raise questions about hitching too much on surveys.”

Key Quotes:

“The headline print of 58.7 for the ISM was a bit better than the consensus had been expecting, and with most of the sub-components moving further into expansion territory, the takeaway is that manufacturing activity is firmly in go-mode”¦.at least to the extent that survey data can measure it.”

“Stronger global growth has helped the manufacturing sector, but there are signs of weakening in the trade outlook in today’s report. New export orders slipped 2.1 points and imports tumbled 3.7 points. These numbers reflect activity in May and thus do not reflect the recent headlines around U.S. tariffs and the retaliatory measures being weighed by our top trading partners.”

“One area where there has not been sustained divergence between hard and soft data is prices. The ISM prices paid measure has been and continues to be a reliable harbinger of inflation trends. On that basis, the fact that the prices paid index has climbed for 6 consecutive months to a seven-year high of 79.5 suggests CPI inflation should grind higher in coming months. Any tit for-tat trade restrictions are not likely to provide any near-term relief for these pricing pressures.”