Two Strong Manufacturing Reports Signal Better Q2 GDP Reading

robotsTuesday brought two manufacturing readings for measuring the U.S. economy. The data might be considered mixed when you look at the Markit PMI reading versus the ISM Manufacturing Index. Still, both point to a stronger total combined reading if you average the two reports, even if ISM dipped by a microscopic amount.

Markit reported that June was a strong month for the manufacturing sector in the United States. The purchasing managers index (PMI) for manufacturing came in at 57.3 at the end of the month, down from a 57.5 mid-June reading. While this is a slight downtick in a revision, it is still almost a point above the reading of 56.4 in May. Most important was the fact that it beat the Bloomberg consensus of 57.0.

Tuesday's PMI was driven by the new orders component at 61.2, versus 58.8 in May. Backlog orders were listed as unchanged at 56.0. The lagging orders component was only 50.6. Employment was at 54.0, while and inventories firmed to 57.6 for input prices and firmed to 52.1 for output prices.

The second manufacturing gain was seen in the Institute for Supply Management (ISM) manufacturing reading, which dropped 0.1 points to 55.3 for June from 55.4 in May. Bloomberg had a consensus reading at 55.6, but all in all the change is probably just not enough to disrupt the snap-back GDP recovery story for the second quarter.

In the ISM reading, new orders rose two points to a strong reading of 58.9. New order growth is more important than anything lagging or coincidental because it signifies expected increased demand ahead. Production was reported as 60.0, and imports were up to 57.0. The backlog came in at a slight contraction at 48.0, while employment was 52.8. Inventories were down to 58.0, and export orders were down to 54.5.

Neither reading would be considered stellar or market moving when you look at them individually, but when you average these both out it does give an indication that most components around manufacturing are pointing to gains on average, with the real win on the leading portion of these indicators.

ALSO READ: The 10 Stocks That Will Take the DJIA to 20,000

If you don't think that the numbers were good enough for growth hopes, the markets told you that they are. The S&P 500 was up 16.55 at 1976.78 and the DJIA was up more than 156 points to 16,983 in mid-afternoon trading. Meanwhile, the yield on the 10-year was up four basis points to 2.555% on Tuesday. As a reminder, the June reports mark the end of the quarter, and this signals an end on strength for second-quarter GDP reports after that nasty 2.9% drop in the first quarter.

Filed under: Economy
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