Purchasing Managers Index Shoots Up Again

The Institute for Supply Management's monthly purchasing managers index increased for a fifth straight month in May to 42.8 from 40.1 in April. The low for the cycle was 32.9 in December, which was the lowest since June 1980.

The current level is above the 41.2 threshold the ISM says historically has signified the dividing line between growth and contraction in the overall economy. A reading below 50.0 indicates contraction in the factory sector but not the overall economy.

Leading indicators within the ISM index were positive. In particular, the new orders index, which accounts for 30% of the ISM index, increased to 51.1 from 47.2 in April, its first reading above 50.0 since November 2007 and its highest since then. The increase indicates that production levels will increase in the time ahead and there is already movement toward such, as evidenced by the production index, which increased to 46.0 from 40.4 in April.

Gauges that tell us of the pressures companies are facing to either raise employee hours or expand capacity moved positively in May. The index on order backlogs increased to 48.0 from 40.5, the highest since April 2008. The more backlogs increase, the greater will be said pressures.

The index on supplier deliveries increased to 49.8 from 44.9 (highest since September 2008). An increase in this index indicates businesses made their deliveries more slowly in the referenced month, signaling an increase in resource utilization. For example, pizzas are apt to be delivered more slowly if the pizza delivery person has more pizzas to deliver.

The laggard employment component fell to 34.3 from 34.4 in April.

The notion of steadying in factory output is already established, but the ISM index has a potent effect on financial markets. This means that today's market movements are not likely to be reversed on a dime.

---

Know What You Own: A number of bond-related ETFs might be of interest to readers of this column, including the SPDR Barclays Short-Term Municipal Bond ETF (SHM - commentary - Trade Now), the SPDR Barclays Municipal Bond (TFI - commentary - Trade Now) ETF, the iShares Barclays 20+ Year Treasury Bond (TLT - commentary - Trade Now) ETF, the iShares Barclays 7-10 Year Treasury Bond (IEF - commentary - Trade Now) ETF, the iShares Barclays 1-3 Year Treasury Bond (SHY - commentary - Trade Now) ETF, the iShares Barclays 3-7 Year Treasury Bond (IEI - commentary - Trade Now) ETF and the iShares Barclays 10-20 Year Treasury Bond (TLH - commentary - Trade Now) ETF. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

ALL TONY CRESCENZI BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.