Comstock Partners, Inc.August 01, 2002
Not Much Talk About a Disconnect Anymore
As we stated in yesterday’s comment, the ISM for Chicago was a precursor of the National ISM released today. The ISM index fell steeply in July, reaching 50.5%, its lowest level since January. The ISM index now suggests that the manufacturing industry is barely expanding. The production related indices all declined in July, with the backlog of orders index falling back below the critical 50% level. If this report doesn’t get the Fed’s attention nothing will. The initial jobless claims rose by 20,000 to 387,000 during the week ended July 27th, which was 13,000 more than expected. Construction spending fell sharply in June, contrary to market expectations of a modest increase. While spending on commercial construction remains weak, the further slippage in residential construction spending will dishearten the financial markets, as housing has been one of the pillars of the economy. All in all, this is a discouraging report, particularly the decline in residential construction. After supporting the economy during the recession, residential construction spending has now declined for three consecutive months. Tomorrow’s employment numbers we believe could also surprise the pundits who feel the number could exceed 100,000, since the layoff announcements are still coming in fast and furious. Brazil’s real continues to decline as the Argentina contagion is spreading and stock markets abroad continue to follow the US stock market down. There doesn’t seem to be as much talk about the disconnect between the stock market and the economy. We wonder why. Tomorrow we will discuss more ramifications of the Public Participation dilemma.