ISM at highest in almost six years
Manufacturing activity continues to accelerate in the U.S., as evidenced by the latest survey released by the Institute for Supply Management.
The ISM Manufacturing Index increased from 59.6 in March to 60.4 in April, the fastest pace since June 2004. A reading above 50 indicates the sector is expanding.
Expect a continued or even a quickening of the pace in upcoming months.
New orders jumped 4.2 points to a very strong 65.7 in April, while companies reporting that they believe customer inventories are too low dropped a steep 6.0 points to 33.0 - very near a cyclical low.
Furthermore, the prices paid component continued its upward march, rising 3.0 points to 78.0. But the jump in commodity prices is a reflection of strong demand at the early stages of production and should not be viewed as worrisome on the pricing front.
Plenty of slack remains in the industrial sector, and wages, the biggest cost for most businesses, are barely moving.
One definite piece of good news for job seekers - employment rose from 55.1 to 58.8, signaling that manufacturers are bringing workers back to production lines to meet rising demand.
However, when it comes to the broader economy, gains in the service sector have been less pronounced and job creation has been much more muted. Plus, weekly jobless claims have been stuck at elevated levels.
A brief look at the last 18 months
After manufacturing activity ground to a screeching halt in late 2008, the small but volatile sector has come roaring back.
By no means are we firing on all cylinders, as capacity utilization remains at an historically low level. But the recovery has been impressive, and goods producers are well on their way to climbing out of a very deep hole.
Finally, it's worth pointing out that the ISM survey never topped 60 during the extended recovery in the 1990s, peaking at 59.4 in late 1994, according to data supplied by the ISM.
No doubt, manufacturing is leading the recovery at this stage of the business cycle.
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