The next U.S. ISM manufacturing and services reports, to be released by the Institute for Supply Management this Monday, could be pretty ugly, says Goldman.
How do they know? They’ve built their own ‘GSAI’ indicator that shares much of the same data that goes into the ISM release, and thus provides a potential early warning:
Goldman’s Jan Hatzius:
The Goldman Sachs Analyst Index fell 6.1 points to 55.4 in July, indicating less widespread economic growth than in June. This decline is consistent with recent weakness in other recent economic indicators. The GSAI now stands at its lowest level since November 2009.
Most of the movement in the GSAI this month is attributed to significant declines in the sales and new orders indices, which fell 12.3 and 9.7 points respectively. The new orders index is now at its lowest level since July of last year. In this context, July’s slight increase in the inventories index may not be a good sign as it suggests production may have moved ahead of demand at a time when orders may be flagging. The gap between the new orders and inventories indices, which provides a rough leading guide to future strength in industrial output in ISM-style surveys, is the narrowest it has been since May of 2009.
The only reminder here is that their indicator remains in growth territory, indicating continued economci expansion, but just of a far slower nature.