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Real Time Insight

The August U.S. ISM Manufacturing Index rose 0.3 to 55.7 exceeding the trade estimate of 53.8.   The index has displayed strength in recent months and recorded three straight positive surprises.   New orders rose 4.9 to 63.2, production eased 2.6 to 62.4, and employment fell 1.1 to 53.3. Breath was healthy with 15 of 18 industries reporting growth and only 1 industry, miscellaneous, reporting contraction.

Inventories may be positive for future output:

Of interest, the customer inventories question revealed that only 1 industry saw inventories being too high.  In contrast, 10 industries saw inventories too low.   The customer inventory assessment was more bullish for growth than the firm review where 9 industries reported decreased inventories and 5 industries reported higher inventories.  The inventory situation seems positive for future production.

Other Developed regions of interest:

Globally, there appears to be a revival in growth.   Here are a few highlights:

The UK CIPS/Markit PMI rose 2.6 to 57.2, hitting a two and half year high.  

The Canadian RBC manufacturing PMI rose 0.1 to 52.1, showing its fifth straight month of expansion.

The August Markit EZ manufacturing index hit a 26 month high rising 1.1 to 51.4 with Greece (48.7), Spain (51.1), and Italy (51.3) reaching 44, 29, and 27 month highs respectively.

Japan’s August Manufacturing PMI rose 1.5 to 52.2 suggesting ongoing expansion.

The August Australian Manufacturing PMI rose 4.4 to 46.4, but remains under 50.

EM readings:

The August Chinese Manufacturing PMI published by the National Bureau of Statistics rose 0.7 to 51.0 showing an uptrend, while the HSBC Markit PMI was barely in growth territory at 50.1, but up from the 47.7 reading in July. China is not booming, but holding together.

However, other areas of the EM remain fragile. Brazil’s PMI rose 0.9 to 49.4 and remains below 50.0, while India’s PMI sank 1.6 to 48.5. South Korea’s manufacturing PMI rose 0.3 to 47.5 and remains depressed. Russia’s PMI rose a hair to 49.4.   The developed world is leading global activity.

Profits:

Operating profits for the S&P industrial sector are expected to rise 7.1% y/y in Q3 2013 and post their strongest growth rate since Q3 2012.  However, they are forecast to contract 1.1% sequentially. Profits for the sector have been struggling since Q2 2012 on a sequential basis.

RTI Questions:  1) Does the strength in manufacturing PMIs suggest the slowdown in non-financial profits is coming to an end? 2) Will the information be strong enough to push stocks higher in the month of September?

Let me know your thoughts below:
  

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