Implications: The ISM manufacturing index, which measures factory sentiment around the country, declined slightly in November but came in much better than the consensus expected. The 58.7 reading in November showed growth for the 18th consecutive month and remains at a robust level, signaling that the manufacturing sector continues to improve at a healthy clip. The best piece of news this morning was the new orders index rose to 66.0, which points to continuing increases in manufacturing activity in the year ahead. And we are not worried about the decline in the employment index, which has had the strongest six month stretch in three years. According to the Institute for Supply Management, an overall index level of 58.7 is consistent with real GDP growth of 5.1% annually. However, the ISM report has tended to over-estimate real GDP growth in the past several years. Our models are now projecting a 2.5% real GDP growth rate for Q4. On the inflation front, the prices paid index fell to 44.5 in November from 53.5 in October, the first decline (level below 50) in the index since July of last year. This is most likely due to the massive drop in oil prices over the past couple of months. So although we think inflation will move higher in the next couple of years, it's going to be a long slow slog upward. Taken as a whole, this month's report shows the plow horse continues to move forward as we close out 2014.
Click here for PDF version