Below is an excerpt from today's Early Look written by U.S. Macro analyst Christian Drake which accompanies the chart above.
ISM: The ISM Services Index followed the Manufacturing Index higher in August with Current Activity, New Orders, Employment, Backlogs and Export Orders all ticking higher. With New Orders at 57.1 on the Services side and holding >60 on the Manufacturing side, the near-term outlook for production activity remains positive. The gains in the Employment sub-indices along with the historical revision pattern for August payrolls are also suggestive of a likely upward revision to Aug NFP.
Also notably, both inventory and inventory sentiment retreated in the latest month. Recall, the Customer Inventories series in this month’s ISM Manufacturing report fell to its lowest reading since April 2011 (see Chart of the Day). And remember, down is good for this series as a gain in the index equates to a buildup of inventory which generally signals lower future orders/factory output.
So, superficially, the declines in the inventory readings in August augur positively for future production and inventory investment.