US manufacturing ISM to post second consecutive increase

Factory activity appears to have stabilized after slowing sharply at the start of the year. The manufacturing ISM reached a low point in March/April and began to reverse the earlier weakness in May. The rebound is expected to continue, with a 0.4 increase to 53.2 in June. 

The three factors that held back manufacturing activity during the winter months: weakness in consumer demand, a sharp contraction in oil-related investments, and dollar strength. Recent data suggests that consumer weakness is beginning to reverse. 

The pace of rig count declines has subsided and is expected to level off soon, which should bring the capex cuts in the oil & gas sector to an end. The effects of stronger dollar will be more persistent, but on the whole, manufacturing activity is expected to continue to improve further over the coming months. 

"Based on a historical correlation between the ISM and GDP, our 53.2 forecast for June would be in line with GDP growth of 2.8%. Incorporating the latest value for the nonmanufacturing ISM puts the compsite at 55.40, consistent with GDP growth of 3%",says Societe Generale.