ISM Manufacturing: Strong New Order Growth Drives Rebound

Bottom Line: After decelerating slightly in October and November, manufacturing activity accelerated in December, led by strong new order growth. 16 of 18 industries reported growth, while only wood products and textile mills reported contraction. Most of the anecdotal reports on prospects for early '18 business were quite positive. And the differential between new orders and inventory levels confirmed the potential for further growth in months to come. Employment dropped modestly, falling back to its 12-month average, and suggesting slightly softer manufacturing payroll growth in Friday's report. The ISM Manufacturing Index ROSE by 1.5 points in December to 59.7%, compared with market expectations for a smaller decline to a 58.2% This indicates that manufacturing activity expanded modestly during the month. New Orders grew sharply from 64.0% to 69.4%. Meanwhile, Export Orders grew modestly. Production grew modestly from 63.9% to 65.8%. Consequently, Order Backlogs grew sharply. Inventories grew modestly from 47.0% to 48.5%. They are modestly below the average survey level for the last twelve months. Employment declined modestly from 59.7% to 57.0%, suggesting there will be modest factory job creation in the upcoming payroll employment report. Prices grew moderately. Quotes from Survey:

• "Our business is moving higher into the new year. Increased sales are resulting in increased purchases of CapEx and raw materials." (Chemical Products)
• "Strong international sales — Europe and Australia — versus last two years. U.S. sales continue to grow. Seeing commodity pricing pressures." (Machinery)
• "We are seeing a ramp-up with companies releasing early 2018 spend now." (Computer & Electronic Products)
• "Business conditions are good; we are tracking well to our projections for the year." (Miscellaneous Manufacturing)
• "First quarter 2018 probably will be better than the fourth quarter 2017." (Fabricated Metal Products)
• "Domestic and international sales on the rise." (Transportation Equipment)
• "Economy [is] strong and business is strong, yet signals of headwinds in 2018 are persistent." (Food, Beverage & Tobacco Products)
• "All suppliers are reporting strong business activity and difficulties obtaining qualified employees." (Paper Products)
• "Demand at this time is strong in the construction part of our business. I think it is due to the impact of the hurricanes and the rebuild and new construction that is required." (Plastics & Rubber Products)