June ISM Unexpectedly Expands for First Time in 5 Months

Surprise rebound in the ISM manufacturing number for June. The market had looked for a continued erosion to 48.5 from 49.6 in May. Instead the index rose to 50.2. This was the first reading above 50 , indicating expansion, since January. But along with the improvement in manufacturing is a strong indication that inflation continued to rise as the prices paid index jumped to a new high of 91.5 from the already elevated 87 reading of last month. Companies are saying it is getting easier to recover raw material costs, which may indicate that people are becoming more accepting of higher commodity costs. Looking at the components, the improvement doesn't look as impressive. Production improved slightly (51.5 vs 51.2) while new orders fell slightly (49.6 vs 49.7). The backlog of orders rose to 47.5, but remains in contraction. The improvement in new export orders stalled slightly in June, as the index didn't improve for the first timed since February, easing back to 58.5 from 59.5 the prior month. Supplier deliveries and inventories both rose, with inventories moving back above 50 to 51.2. Customer inventories also popped higher from 47 to 55. Employment weakened to 43.7 and imports also fell to 46. Economists expect that some of the improvement is tied to the transitory rebate checks. Industries seeing improved performance included computers, petroleum, food and furniture. Declining industries included wood, appliances, transportation apparel, plastics and machinery.