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  The ISM Manufacturing Index Rose to 49.5 in February
Posted Under: Data Watch • ISM

 

Implications: While the headline index showed continued slight contraction in the factory sector, the details in today's report point to growth in the months ahead.  Manufacturing activity continued to decline in February, but at a slower pace than in recent months, while nearly every sub-index improved.  The two most forward looking measures, new orders and production, continue to show expansion, suggesting a pickup in activity in the spring.  And the improvements weren't limited to a few select industries. Twelve industries reported growth in new orders, while just four reported declines. New orders lead to increased production, and as companies hire to fill new demand, manufacturing employment should move modestly higher as well.  And when it comes to employment, it's important to remember that manufacturing is just a small portion of the employment picture.  In 2015, manufacturing added an average of 2,500 jobs a month, while the private sector as a whole grew by more than 210,000 jobs monthly.  In other words, today's report does little to change our outlook on Friday's employment report, where we expect to see gains north of 200,000.  The modest readings from the ISM manufacturing report since the recent peak at 58.1 in August 2014, have given some pessimists reason to cheer, but we see no broad-based evidence of a significant slowdown.  Remember, the ISM is a survey which can reflect sentiment as much as actual economic activity.  As a whole, today's data shows manufacturing stabilizing, but continues to highlight a stark contrast between two broad sectors of the economy: services, where the economy is expanding briskly and prices are rising, versus goods, where both growth and inflation are soft to non-existent.  Overall activity isn't booming, but it does continue to plow forward at a modest pace.  In other news this morning, construction increased 1.5% in January (2.2% including upward revisions for November/December), to the highest level since 2007.  The gain in January was led by government projects (paving roads and building bridges) and private construction of manufacturing facilities, power plants, and hotels.  In other recent news, pending home sales, which are contracts on existing homes, declined 2.5% in January, held back in part by blizzards in the Northeast.  In turn, existing home sales, which are counted at closing, should be down slightly in February.

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Posted on Tuesday, March 1, 2016 @ 11:07 AM • Post Link Share: 
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