Thursday, September 2, 2010
Treasury security prices closed lower for the first time in three days Wednesday after a reading on the manufacturing sector unexpectedly improved in August. The yield on the two-year note rose three basis points to 0.73%, while the 10-year note yield jumped 10 basis points to close at 2.57%. Global stocks surged the most since May on better than expected manufacturing growth in the U.S. and China, pushing the MSCI World Index up 2.9% while the S&P 500 Index gained 3%.
Following six consecutive months of modest recovery, payroll processor ADP indicated in its latest National Employment Report that private nonfarm payroll levels fell slightly during August. The 10,000 worker decline followed six straight months of increases and a downwardly revised 37,000 rise in July. ADP reported that private service industry employment rose for the seventh consecutive month. However, the 30,000 August rise was the smallest of the period.
The Composite Index from the Institute for Supply Management rose to 56.3 in August from 55.2 in July, after three consecutive months of decline. Consensus expectations had been for another drop to 53.0. The August level suggests expansion in factory sector activity as it is the thirteenth consecutive figure above 50 and is up from the low of 32.5 reached in December 2008. The employment component improved to 60.4, near its strongest reading on record. During the last ten years there has been an 89% correlation between the ISM employment index and the month-over-month change in factory sector payrolls.
The separate ISM index of prices paid rose modestly to 61.5, its highest level in three months. It remained down from the April high of 78.0 but up from the December 2008 low of 18.0. Just 35% of respondents reported higher prices while only 12% indicated lower prices. During the last twenty years there has been an 83% correlation between the price index and the three-month change in the PPI for intermediate goods.
The information contained herein has been obtained from sources deemed to be reliable: however Southeast Corporate does not guarantee its accuracy or completeness. All opinions and estimates included in this report constitute Southeast's judgment as of the date of this report and are subject to change without notice.
