US ISM Manufacturing Signals Expansion For First Time In 5 Months, Prices Paid Hits 34-Year High

The Institute for Supply Management's (ISM) index of conditions in the manufacturing sector in June unexpectedly rose above 50 - indicating expansion - for the first time in five months to 50.2 from 49.6. A breakdown of the report reflects a surge in the prices paid component, which hit a 34-year high of 91.5 from 87.0, as rocketing commodity prices boost input costs. Furthermore, production and inventory growth accelerated slightly, but on the other hand, new orders contracted. This suggests that manufacturers may be overproducing for current demand levels, and thus, inventories are now building up. Clearly, this would have negative implications as producers will likely be forced to cut selling prices to reduce inventories later on, which will squeeze profit margins further. Meanwhile, the employment component slipped down to 43.7 from 45.5, marking the eighth consecutive month that manufacturers have let workers go. This does not bode well for this Thursday's US non-farm payrolls report, as layoffs in this sector will weigh on the overall index

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