US Equity And Economic Review: This Is Not A Market That Wants To Move Higher

The Institute for Supply Management (ISM) released its monthly manufacturing and non-manufacturing report last week. Although manufacturing increased .2% to 48.2, this was the fourth consecutive month of contraction. But new orders and production were both above 50, indicating we could see slightly higher numbers next month.And the anecdotal comments were surprisingly positive:

“The oil and gas sector continues to be challenged by low oil and gas prices. Risk of suppliers filing for bankruptcy and reducing their workforce is becoming an increasing risk. Our company workforce is also declining.” (Petroleum & Coal Products)

“Business this month [is] better than last month and better than this period last year. Reduced oil and basic chemical prices providing favorable margin comparisons.” (Chemical Products)

“Huge rollout in wireless in 2016 across all markets. We should be very, very busy.” (Computer & Electronic Products)

“We are a bit slower, but staying busy.” (Fabricated Metal Products)

“Business is still strong, but slowing.” (Transportation Equipment)

“2016 starting off with strong orders.” (Primary Metals)

“Market is sluggish to start the year.” (Wood Products)

“Medical device continues to be strong.” (Miscellaneous Manufacturing)

“Overall demand is higher than expected for post-holiday season.”(Plastics & Rubber Products)

“Much worldwide macroeconomic uncertainty affecting our business. Business confidence seems low.” (Food, Beverage & Tobacco Products)

While some comments mentioned a “slowdown” and there was a specific reference to the weak oil market, other comments reported strength and increasing orders. The overall tenor plays more to the positive new orders and production numbers than the bearish headline reading.

The service sector continues to expand, but the 53.5 headline number was below consensus.8/18 sectors reported contraction, which is a larger than desired percentage. The activity reading dropped sharply, form 59.5-53.9. New orders also declined, but by a smaller margin (58.9-56.5). But as with the manufacturing report, the anecdotal comments were surprisingly strong:

“We have experienced a slight increase in business activity since the start of the new year. Our new job orders have increased about 10 percent and the job awards about 12 percent.” (Professional, Scientific & Technical Services)

“Healthcare requirements in several states changing, which will [affect] our business directly.” (Health Care & Social Assistance)

“Research funding expected to increase during 2016 and will result in higher employment when compared to calendar year 2015.”(Educational Services)

“Protein commodities all lower due to strong U.S. dollar. Trade imbalance in exports and embargos with certain foreign nations.” (Accommodation & Food Services)

“Sales have improved. We are feeling more optimism, but remain concerned about the impact of global unrest.” (Retail Trade)

“Watching economic slowing in other sectors, but not affected yet.”(Management of Companies & Support Services)

“We continue to see record low key commodity prices driving product cost down. Record low oil prices are putting extreme pressure on exchange rates for key export markets Canada and Mexico. Falling prices [are] pushing margins down as many are forced to drop prices to meet the competition. Extreme weather conditions this season are adding additional challenge[s] to both retail and wholesale sales volume regionally.” (Wholesale Trade)