We noted earlier that the headline on the ISM came in close to expectations, but the real story is in the leading indicators, and they’re pointing south.
“New orders are decelerating, and perhaps abruptly, while inventories climb and hiring slows. The ISM’s new orders index, in prior months having already showed signs of slowing, fell two full points to 51.1 to indicate only mild month-to-month growth. Inventories, which had already been going up, really spiked, up more than four points to 55.6. This will raise concern that a significant part of the inventory build is more and more unwanted. Employment, which had been very strong, fell nearly four points to 56.5.
Backlogs are another bad sign, falling five points and showing month-to-month contraction at 46.5. The headline composite of 54.4 is still solid but orders are now a central concern for the manufacturing outlook. This report may prove to be a negative for today’s stock market.”