Event To Watch: US ISM Surveys

US ISM Manufacturing and non-manufacturing - July: The headline index should have improved for the 6th consecutive month to 46.5 from 44.8 a month ago. Although regional manufacturing surveys showed mixed results in July (Philadelphia Fed index slid to -7.5 from -2.2, Empire survey rose to -0.6 from -9.4, the highest since April 2008 while the Richmond Fed jumping to 14 from 6, the third month that the index stayed in positive territory), ISM manufacturing index should have been supported by new orders.

Although the 'inventory' component had weighed on the headline over the past few months, significant improvement would be seen in July as other surveys have shown than consumers are more willing to increase inventories. Moreover, production increase in vehicles after previous inventories have been reduced to more reasonable level should have provided some supports

The component we worried about the most is 'employment' which is usually the last component to show improvement. However, recent job data signaling the pace of contraction has also moderated helped sooth some of the concerns.

ISM non-manufacturing is also expected to have edged high to 48 in July from 47 in the previous month. The services sector in the US has probably reached bottom as the 'new orders' component rose above 50 last month. Same as the manufacturing sector, the employment component should have weighed on the index as this is normally the last one to recover. However, recent data in the job market suggest contraction has moderated and we believe this will soon be reflected here.