ISM manufacturing rose to 60.8 in September (from 58.8 in August), which was even higher than what we had pencilled in (60.0, which was the highest forecast among analysts) and against the consensus of a decline to 58.1.
The index is now at the highest level since May 2004, where it was shortly above this level.
In our view, one should be cautious in not over-interpreting the increase, although the release still sends a strong signal from the US manufacturing sector.
While some of the good subcomponents like 'new orders' and 'manufacturing' both rose, some of the increase is due to a big jump in the 'supplier deliveries' subcomponent caused by the hurricanes Harvey and Irma. The latter contributed to 1.46 index points of the 2 points increase in the ISM index. This may also help to explain the relatively muted market reaction, as markets usually would react more to such a 'positive' surprise.
Overall, we think the 'supplier deliveries' should fall back again when businesses return to normal in coming months, which should cause a decline in ISM manufacturing as well.
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