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ISM Manufacturing: Strong New Order Growth with Increase Price Pressures

January 3, 2017
Bottom Line: Manufacturing activity expanded sharply in December with the gauge of new orders at its highest level in two years. Anecdotal evidence from the survey suggest positive outlooks across the board (see quotes below). Comments cite increasing demand, tightness in labor markets and pressure to increase prices. The differential between new orders and inventory levels grew, nearly reaching its highest level in the three years and suggesting manufacturing activity will continue to expand over the coming months. Employment in the manufacturing sector grew, and was modestly above the average survey level for the last twelve months. Prices paid increased from 54.5% to 65.5%, the highest level in five years, indicating a sharp increase in the price of raw materials.

The ISM Manufacturing Index ROSE by 1.5 points in December to 54.7%, compared with market expectations for a smaller increase to a 53.8%. This indicates that manufacturing activity expanded modestly during the month.

New Orders grew sharply from 53.0% to 60.2%. Meanwhile, Export Orders grew moderately.

Production grew moderately from 56.0% to 60.3%. Consequently, Order Backlogs declined slightly.

Inventories declined modestly from 49.0% to 47.0%. They are modestly below the average survey level for the last twelve months.

Employment grew slightly from 52.3% to 53.1%, suggesting there will be modest factory job creation in the upcoming payroll employment report.

Prices grew sharply.

Quotes from Survey:

“Very strong month in terms of booking and billing which will contribute to a good overall year revenue-wise.”(Computer & Electronic Products)

“Moving into [a] more inflationary environment, with lots of pressure to increase prices on a number of fronts.” (Food, Beverage & Tobacco Products)

“Business continues to be brisk with an uptick of RFQs. Customers are earmarking funds for capital equipment upgrades.” (Machinery)

“Hiring still tight on available local labor. Business, by segments, still uneven. Some consumer markets very (seasonally) strong, but industrial markets lagging.” (Transportation Equipment)

“Business conditions are good, demand is growing.” (Miscellaneous Manufacturing)

“Continued strong demand for product and strong forecast for next year.” (Nonmetallic Mineral Products)

“December 2016 is way ahead of December 2015.” (Fabricated Metal Products)