The US manufacturing
ISM rose to 50.9 in June after a reading of 49.0 in May, above the consensus
forecast (50.5) and the strongest reading since March (51.3). In terms of
the key underlying components, there was an improvement in new orders (51.9,
previous: 48.8) that was offset by a decline in the employment index
(48.7, previous: 50.1). The strength in the headline was due to the
production index which climbed to 53.4 after a May reading of 48.6. There
were two factors underlying this increase. The first was a rebound in the
inventories component, which improved to 50.5 from 49.0 and suggests that
inventories are being rebuilt after the index spent the prior three months in
contractionary territory. The second was new export orders, which rose to 54.5
from 51.0. Notably, those three indices are the only ones which stand
above their six-month averages.
Construction spending rose 0.5% on the month, a
bit below the consensus forecast (0.6%). Private residential construction
rose 1.2% on the month, which was offset by a decline of 1.4% in private
nonresidential spending while public construction spending rose 1.8% on the
month. When combined with revisions, this report suggested stronger
residential construction spending in Q2 that was offset slightly by softer
structures investment. On the whole, this bumped consensus GDP tracking
estimate for 2nd Quarter to 1.5% quarter or quarter from 1.4%
previously and consistent with 2nd quarter average of the
manufacturing ISM to 50.2.