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June 2, 2014 7:57 pm
US markets suffered a bizarre morning of volatility after the Institute for Supply Management revised its closely watched manufacturing survey twice in the space of a couple of hours.
Although economic data are often revised, it normally takes months, not minutes. The incident highlights the sensitivity of financial markets to a survey-based indicator put out by a private organisation.
At 10am, the ISM said its purchasing managers’ index had fallen to 53.2 in May, down from 54.9 in April and well below market expectations of 55.5. Such a fall would be a worrying sign of economic weakness. Ten-year Treasury yields immediately dropped from 2.51 to 2.49 per cent.
Then around 11.30, the ISM corrected the figure to 56, saying it had incorrectly applied the seasonal adjustment from the previous month. Markets rallied. But that was not the end – about an hour later, the ISM corrected its figure again to 55.4. That left 10-year yields trading at around 2.53 per cent.
David Ader, strategist at CRT Capital, said: “The market was weaker before, goosed with [the first revision], and now with full news out is weaker again.”
The ISM did not immediately respond to a request for comment.
The second revision led Joshua Shapiro, chief US economist at MFR, to say the index was “one from The Three Stooges school of statistics”. Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, said: “Another revision, the only question is whether two wrongs make a right?”
The ISM index is constructed by asking purchasing managers about expansion or contraction in their production, their inventories, plans for new hiring and the amount of new orders.
A reading above 50 is consistent with expanding activity. Economists value ISM as a leading indicator of future activity, and thus a sign of where harder data – such as the monthly non-farm payrolls report – is likely to go next.
It’s embarrassing for ISM, we usually get a revision a month or so later
- Michael Kastner, Halyard Asset Management
Michael Kastner, principal at Halyard Asset Management, said: “It’s embarrassing for ISM, we usually get a revision a month or so later.” After the initial print that was softer than expected, Mr Kastner said: “I was scratching my head when it came that low.”
The revised data are consistent with an economy bouncing back from a dismal first quarter, when freezing winter weather and a run down in inventories caused it to contract at an annualised pace of 1 per cent.
However, there was one disappointment in the data, with the employment sub-index falling from 54.7 to 52.8. That suggests faster growth in activity is still not turning into rapid jobs growth, which in turn would feed a broader recovery.
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