Mike Shedlock
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The Non-Manufacturing ISM for August came in positive once again showing a clear divergence between manufacturing and services.

Index August July Change Direction Rate of Change Trend in Months
NMI™ 53.7 52.6 +1.1 Growing Faster 32
Business Activity 55.6 57.2 -1.6 Growing Slower 37
New Orders 53.7 54.3 -0.6 Growing Slower 37
Employment 53.8 49.3 +4.5 Growing From Contracting 1
Supplier Deliveries 51.5 49.5 +2.0 Slowing From Faster 1
Inventories 52.5 54.5 -2.0 Growing Slower 7
Prices 64.3 54.9 +9.4 Increasing Faster 2
Backlog of Orders 50.5 44.5 +6.0 Growing From Contracting 1
New Export Orders 52.0 51.0 +1.0 Growing Faster 2
Imports 49.5 44.5 +5.0 Contracting Slower 2
Inventory Sentiment 67.0 59.0 +8.0 Too High Faster 183

"The NMI™ registered 53.7 percent in August, 1.1 percentage points higher than the 52.6 percent registered in July. This indicates continued growth this month at a slighter faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55.6 percent, which is 1.6 percentage points lower than the 57.2 percent reported in July, reflecting growth for the 37th consecutive month. The New Orders Index decreased by 0.6 percentage point to 53.7 percent. The Employment Index increased by 4.5 percentage points to 53.8 percent, indicating growth in employment after one month of contraction. The Prices Index increased 9.4 percentage points to 64.3 percent, indicating substantially higher month-over-month prices when compared to July. According to the NMI™, 10 non-manufacturing industries reported growth in August. Respondents' comments continue to be mixed, and for the most part reflect uncertainty about business conditions and the economy."

All News Good News?

In light of the plunge in manufacturing (see Manufacturing ISM Contracts 3rd Month Led by Declining New Orders; Recession-Type Numbers? You Bet!), this is a relatively strong report. In response, the US dollar index is flat, but the stock market, crude, gold, and silver are all up.

We also had good news (as well as expected news from the ECB today on bond purchases).

Mario Draghi said the ECB will target government bonds with maturities of one to three years, including longer-dated debt that has a residual maturity of that length. Purchases will be fully sterilized, meaning the overall impact on the money supply will be neutral, and the ECB will not have seniority, he said. 

Once again, all news seems to be good for the stock market. When the economic news is weak (which it has been for the most part), chatter of more QE holds the day. When the news is stronger than expected or the Fed or ECB toots their respective horns, we see action like this. This action will not last forever, but I cannot tell you when it will end.

Friday's job report could be telling. These opening stock market gaps in either direction seem to fill quickly more often than not, and may do so tomorrow should the jobs report be weak.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.
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