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ISM Manufacturing: Strongest New Order Growth in 3+ Years

March 1, 2017

Bottom Line: Manufacturing activity expanded sharply again in January with the gauge of new orders hitting 3+ year highs. Only one of 18 industries - furniture and related products - reported slower growth in January. The differential between new orders and inventory levels rose, typically an indication of further strength to come. The prices paid index retreated slightly after reaching 5+ year highs in January. Finally, we should note this is survey data and, while typical at turning points, there is a large divide between this kind of "soft" data and the "hard" data like durable goods orders. This certainly bears watching and studying for follow through in the hard data.

The ISM Manufacturing Index ROSE by 1.7 points in February to 57.7%, compared with market expectations for a smaller increase to a 56.2%. This indicates that manufacturing activity expanded modestly during the month.

New Orders grew moderately from 60.4% to 65.1%. Meanwhile, Export Orders grew slightly. Production grew modestly from 61.4% to 62.9%. Consequently, Order Backlogs grew sharply. Inventories grew moderately from 48.5% to 51.5%. They are modestly above the average survey level for the last twelve months.

Employment declined modestly from 56.1% to 54.2%, suggesting there will be modest factory job creation in the upcoming payroll employment report.

Prices declined slightly.

Quotes from Survey:

"Business [is] improving and lead times are extending by two or more weeks." (Chemical Products)

"Very positive outlook for this quarter. Production goals have been adjusted multiple times and increased each time due to demand." (Computer & Electronic Products)

"Product demand continues to be solid." (Plastics & Rubber Products)

"Bookings are heavy early in the season. Expect robust first half of the year." (Primary Metals)

"Demand still outstrips capacity. Competitors have announced heavy capital investments to increase capacity." (Food, Beverage & Tobacco Products)

"Sales and business continue to be strong and increasing." (Machinery)

"Business holding steady in Q1." (Transportation Equipment)

"Medical device manufacturing is still strong." (Miscellaneous Manufacturing)

"Even though oil and gas prices are on the upswing, we still face a tough 2017 and will continue to save on costs." (Petroleum & Coal Products)

"Major focus on commodities and potential [for] further inflation." (Electrical Equipment, Appliances & Components)

Article by Contingent Macro Advisors