ISM Manufacturing: Employment Component Drives Another Tick Higher
February 1, 2017
Bottom Line: Manufacturing activity expanded sharply in December with the gauge of new orders holding at two-year highs and the employment component jumping to its highest level since August 2014. Anecdotal evidence from the survey suggest positive outlooks across the board with the strongest new order growth coming from plastics and rubber, chemical and transportation equipment sectors . The differential between new orders and inventory levels declined slightly, mostly due to a slight increase in inventories from low levels. Finally, prices paid increased from 65.5% to 69.0% this month indicating an increase in the price of raw materials.
The ISM Manufacturing Index ROSE by 1.5 points in January to 56.0%, compared with market expectations for a smaller gain to a 55%. This indicates that manufacturing activity expanded modestly during the month.
New Orders grew slightly from 60.3% to 60.4%. Meanwhile, Export Orders declined modestly.
Production grew modestly from 59.4% to 61.4%. Consequently, Order Backlogs declined slightly.
Inventories grew modestly from 47.0% to 48.5%. They are modestly above the average survey level for the last twelve months. Employment grew moderately from 52.8% to 56.1%, suggesting there will be modest factory job creation in the upcoming payroll employment report.
Prices grew moderately.
Quotes from Survey:
"Demand very steady to start the year." (Chemical Products)
"January revenue target slightly lower following a big December shipment month." (Computer & Electronic Products)
"Strong start to the new year. Production is increasing and we are adding capacity." (Plastics & Rubber Products)
"Business looks stronger moving into the first quarter of 2017." (Primary Metals)
"Economic outlook remains stable and no current effects of geopolitical changes appear to be penetrating market conditions." (Food, Beverage & Tobacco Products)
"Sales bookings are exceeding expectations. We are starting to see supply shortages in hot rolled steel due to the curtailment of imports." (Machinery)
"Year starting on pace with Q4 2016." (Transportation Equipment)
"Business conditions are good, demand is generally increasing." (Miscellaneous Manufacturing)
"Conditions and outlook remain positive. Raw material prices are stable resulting in stable margins. Asset utilization remains high." (Petroleum & Coal Products)
"Steady demand from automotive." (Fabricated Metal Products)
Article by Contingent Macro Advisors