ISM Internals Were Ugly!

So inflation and inventories were up? And today, factory orders were down, which harmonizes with the build in inventories! Not good!

from ETFGuide.com:

By, DARYL MONTGOMERY Oct 01, 2010 The headline number for the September ISM Manufacturing index didn't indicate how bad the report's internals were. Consumer income was up in August due to extended unemployment benefits. The budget deficit for 2010 is supposedly going to be only $1.3 trillion, although more than this amount was already borrowed by the federal government by August. Altogether the 'good' news on the economy has actually been pretty bad lately.

Consumer income had a nice rise in August thanks to extended unemployment benefits (not regular unemployment benefits). The final budget deficit figures for fiscal year 2010 have been leaked and the U.S. is supposedly only in the hole for a massive $1.3 trillion. The ISM manufacturing index came in at 54.4 and the  the mainstream press is citing a strong manufacturing sector as the reason the U.S. stock market had its best September since 1939.  Altogether, the news could be summed up as 'stupidity you can believe in'. By almost every measure except the headline number, the ISM report was a disaster. The highest number inside the report was prices paid, an inflation measure, which came in over 70. Prices apparently went up a lot in August. This component had the biggest increase by far, which wasn't difficult because only one other component went up - inventories. Inventories usually pile up because sales are slowing down. The negative big gains were more than matched with negative big losses in the report. Order backlogs, supplier deliveries, employment, and the production components all had big drops. Well, that certainly should have led to a big stock market rally all right. As for the supposed improved budget deficit figures, as of this August, $1.377 trillion dollars had already been borrowed to fund the federal government in fiscal year 2010. This number would have been $115 billion larger (for a total of $1.492 trillion) if there hadn't been 'financing by other means'.  Financing by other means had a big increase in August and is projected to have another big increase in September. There are also substantial 'off budget outlays'. See http://www.fms.treas.gov/mts/mts0810.pdffor the August Treasury report on 2010 fiscal year spending. Makes you wonder if the U.S. government is using the Enron Accounting Manual to do its books. Finally, some people might argue that an economy that is dependent on extended unemployment benefits for increased consumer spending could just perhaps be somewhat troubled. Few if any of these people write for the mainstream press of course, which generally treated the news of an increase in consumer income and a rise in the savings rate to 5.8% as just more rosy news. If this is such good news, obviously the U.S. should institute ultra super extended unemployment benefits. After all, look at what these policies have done for Europe – riots in the streets and turmoil in the bond markets. The euro has been rising though and obviously this must be due to improved manufacturing in the U.S., if you follow the logic of the mainstream press.  If not, you might just conclude that there is a whole bunch of government manipulation of the markets going on.  Disclosure: No positions. Daryl Montgomery Organizer, New York Investing meetup http://investing.meetup.com/21