Both ISM Manufacturing and Non Manufacturing reported this week. One was a market mover and the other a market dud. Non manufacturing has always been the Rodney Dangerfield of the two. That’s because it’s a steady Eddie without much excitement compared to its more volatile and sexier sibling.
Manufacturing, lets face it, is full of surprises, because manufacturing especially durables bounce around so much.
The excitement over manufacturing was positively titillating this week because consensus had it going down sharply and it in fact rose somewhat. A horse race of course makes a good news story. Overcoming the odds and all that.
Non Manufacturing also surprised, but to the downside against an already downside consensus. In a few months when consensus estimates and the horse race are long forgotten, here’s what your gonna see:
Steady Eddie Non Manufacturing ISM had its worst performance since November 2008, which was at the height of the financial crisis and economic downturn, dropping from 54.3 to 51.5. The more exciting Manufacturing ISM increased modestly to 56.3 from 55.5.
What is so important about Non Manufacturing is it accounts for 80% of the economy and its usual steady Eddie performance was stopped cold in its tracks by a dramatic performance even Manufacturing ISM would envy.
Its darn hard to have such a drop in 80% of the economy. Manufacturing can bounce around so much precisely because it represents what is now only a small fraction of the economy.
If Non Manufacturing ISM stays this way for another month things are going to get pretty bad. Manufacturing ISM becomes almost immaterial in this scenario.