ISM suggests manufacturing growth has stalled

Following Friday’s anemic GDP number, the ISM survey suggests that manufacturing growth pretty much stalled last month.

The ISM Manufacturing Index, offered by the Institute for Supply Management, declined from 55.3 in June to 50.9 in July, well below the consensus from most analysts of around 54.



To make things worse, new orders turned negative – 51.6 to 49.2 – for the first time since June 2009 when the recession was officially declared to have ended. That suggests further weakness in the short term.

Employment remained positive but is decelerating – 59.9 to 53.5 – and given the weakness in the manufacturing sector, prices paid continued to recede, dropping from 68.0 to 59.0.

Following the downward revisions to GDP in Q4-10, Q1-11 and the weak growth we saw last quarter,  the poor showing by a key survey of manufacturing is clearly disturbing.

This once hot sector – and one of the few bright spots in the economy – has slowed dramatically.
The earthquake in Japan and the subsequent kink in the supply chain has played a role, but other factors are also weighing on growth.

Japanese industrial production, though not fully recovered, is growing at a decent pace, and that should help U.S. manufacturing, especially auto production.

I still believe we will avoid an outright recession this year, but we are perilously close to a growth recession – one in which the economy grows but unemployment rises (that’s already happening) and nonfarm payrolls fall.

ISM services index eases in June

The lull in economic activity that began a couple of months ago has continued into June according to the latest data supplied by the Institute for Supply Management.

The ISM Non-Manufacturing Index, which measures activity in the broad-based service sector, slipped from 54.6 in May to 53.3 in June, signaling activity in service industries progressed at a slower pace last month.

A reading above 50 suggests the sector is expanding.



Basically, it’s the same story we’ve been hearing about since April when the spike in weekly jobless claims first signaled a soft patch in the recovery was beginning to evolve.

The Fed has acknowledged the recent sluggishness and continues to suggest it is temporary; however, Bernanke recently conceded that policymakers have been unable to pinpoint the exact causes and have admitted they do not have a quick remedy at their disposal.

The tragic earthquake that struck Japan in March has caused disruptions in the global supply chain, which has impacted the recovery.

But the general uncertainty in the economy, weakness in housing, slow job creation and tight credit standards have all played a role.

If there is one bright spot – which in some respects, is just a reflection of latest slowdown – prices eased from 69.6 to 60.9.

Still, the data are not signaling the onset of a new recession.

ISM Manufacturing shows unexpected improvement

An unexpected rise in the ISM Manufacturing Index suggests the recent slowdown in the goods producing sector may be coming to an end.

The national look at manufacturing accelerated from 53.5 in May to 55.3 in June, the 23rd straight month of expansion.  A reading above 50 is an indication that manufacturing activity is moving ahead.



But the good news (a sigh of relief might be a better way to describe June’s increase) must be tempered by the fact that a jump in inventories was responsible for much of the gain – 48.7 to 54.1.
Nothing worrisome but worth noting.

New orders and production did rise slightly, suggesting stability, but the increase in inventories may hamper production down the road.

Meanwhile, costs are still a burden for most manufacturers.  Gasoline and a host of commodities have dropped in price but prices paid managed just a modest decline of 8.5 points to 68.0.

Despite the modest concern from some of the internals in the survey, stocks viewed the report in a favorable light and rallied following the release of the index.

All in all, today's report is just the latest indicating that the recovery still has legs.  Short legs, but nonetheless, we're still moving forward.

ISM Manufacturing Index falls to lowest level in almost two years

Blame supply issues caused by the earthquake in Japan or the overall slowing in the U.S. recovery, but the closely-followed ISM Manufacturing Index fell a much larger-than forecast 6.9 points to 53.5, the lowest reading since September 2009 and confirming recent sluggishness in regional surveys.

A level above 50 suggests that manufacturing is expanding.



New orders, production and exports slowed significantly, signaling that further cooling is likely in the short-term, but the survey revealed that most manufacturers still believe that customer inventories are too low, mitigating some of the negativity from the report.

Prices paid did ease some, falling from 85.5 to a still-high 76.5.

Nonetheless, the larger-than-forecast slowdown in manufacturing is the latest piece of data to signal a continuation in the recent softness in economic activity.

Weekly jobless claims have been above 400,000 since early April, GDP growth in Q1 slowed to 1.8%, housing has been muddling along, and ADP said this morning that the economy created only 38,000 jobs in the private sector.

Now, manufacturing, which has been the lone bright spot in an otherwise dull economic outlook, is cooling, as Japanese supply-chain issues ripple across the Pacific. Wish there was better news to report this morning, but problems in Japan are likely to be temporary as rebuilding efforts gather steam later in the year.

ISM Services Index takes unexpectedly sharp downward turn

The Institute for Supply Management reported this morning that the ISM-Non Manufacturing Index fell a steep 4.5 points to 52.8, the lowest reading since last August and well below analysts’ forecasts. A reading above 50 suggests the broad-based service sector is expanding.



The business activity subcomponent fell a sharp 6.0 points to 53.7 and new orders, a proxy for future activity, plunged 11.4 points to 52.7.

Though pricing pressure continue to cause problems, prices paid did manage to slip by2 points to 70.1.

The slowdown in GDP in the first quarter appears to be carrying over into Q2, according to today’s report provided by the ISM.

Commodity prices have been soaring, and the slow and uneven recovery has not done much to bolster consumer confidence.

Further, the recent jump in jobless claims above 400,000 – assuming the outside possibility this is not just statistical noise caused by the inability to capture seasonality – is worrisome. Three consecutive weeks of elevated numbers, coupled with today’s disappointing ISM report, strongly suggest an uncertain start to Q2.

Though the recovery is not on the verge of stalling, it does look as if we are entering a temporary slowdown in economic activity that will complicate the Fed’s job and potentially slow progress on the job front.



Despite the weakness in the broad service sector, the ISM’s data show that manufacturing continues to support the economy.

Manufacturing remains strong, price pressures squeeze firms

The ISM Manufacturing Index slipped but held above 60 for the fourth-consecutive month, signaling that the manufacturing sector continues to fuel the economic recovery. Price pressures, however, remain a significant problem.

The closely-followed national gauge of goods producers dipped from 61.2 in March to 60.4 in April, topping the Bloomberg forecast of 59.5.  A reading above 50 suggests the sector is expanding.

The rate of growth in new orders and production also decelerated but held above 60 for the fifth-consecutive month.  And employment remained strong, as the Institute for Supply Management noted, “the first four months of 2011 are the highest readings in the last 38 years.”

Manufacturers, however, are now reporting their inventories are at comfortable levels, which could signal a deceleration in the coming months. Nothing worrisome, as a modest slowdown to a more sustainable rate of growth would be a healthy sign.

But surging prices at the early stages of production continue to bedevil manufacturers, as prices paid rose from 85.0 to 85.5.

Anecdotal evidence from the Fed’s Beige Book and comments by several major corporations in their Q1 earnings report reveal that higher input costs are forcing price hikes as pricing power begins to resurface, and core inflation has risen following extremely low levels in the second half of 2010.

The Federal Reserve had fretted in the middle of last year that inflation was hovering at uncomfortably low levels, raising the possibility the economy could slip into a deflationary spiral.

Soaring oil and commodity prices and QE2 have eliminated the outside possibility that falling prices might engulf the economy, and Fed Chief Ben Bernanke hinted at his press conference last week that the odds of another round of bond buys is very low.

Despite the worrisome rise in raw material prices, today’s upbeat report on manufacturing will ease worries that the economy might be slowing too quickly.

Friday’s employment  report

Attention will now turn to Friday’s labor report where economists surveyed by Bloomberg expect nonfarm payrolls to rise of 185,000 in April following a 216,000 increase in March.

Weekly jobless claims have unexpectedly jumped above 400,000 over the past three weeks and a weak payroll number would raise fears about the durability of the recovery, despite today’s upbeat manufacturing number.

But one month does not make a trend, and it seems likely that the slowdown in growth last quarter, as evidenced by the sluggish GDP number, is probably temporary.

ISM services survey shows economy expanding but pace slowed in March

The ISM survey of the br0ad-based service sector revealed that the lion’s share of the economy continues to expand, but the pace moderated from the first two months of the year.

The ISM Non-Manufacturing Index released by the Institute for Supply Management slowed from 59.7 in February to a still healthy 57.3 in March. A reading above 50 suggests the service sector is expanding.



The Business Activity/Production subcomponent took the biggest drop, falling from 66.9 in February to 59.7, but new orders, which are a good indication of future activity slipped just 0.3 points to a still strong 64.1.

It appears that some of the uncertainty earlier in the month caused by the spike in oil prices and possibly what’s going on in Japan may have played a role, however, the exports component of the survey did improve.

We're also seeing a bit of divergence from manufacturing, which continues to lead the expansion.



Next month should provide us with more clarity on the situation in Japan and how that might be impacting the U.S., but it is unlikely that the jump in crude and the situation overseas will threaten the U.S. recovery in my view.

ISM manufacturing remains at healthy level but prices are a rising concern

The ISM Manufacturing Index, which is a closely-followed survey of national manufacturers, slipped from a cyclical high of 61.4 in February to a still healthy 61.2 in March, roughly in line with most analysts’ forecasts.  But the cost of raw materials remains a concern.

A reading of 50 suggests that goods producers are neither expanding nor contracting.

" The component indexes of the PMI remain at very positive levels and signal strong sector performance in the first quarter. While manufacturers are benefiting from strength in new orders and production, there is significant concern with regard to commodity prices,” Norbert Ore, chair of the Institute for Supply Management said.

“Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins."

He states his case well. 

Prices paid jumped from an already high 82.0 in February to 85.0, signaling that manufacturers continue to grapple with the high costs of materials.   And regional surveys of the manufacturing landscape suggest firms are starting to have some success passing along higher prices.

Nonetheless, wages gains have been muted and excess slack still exists in the economy, which should limit shortages and bottlenecks and help keep core inflation under control, at least in the short term.

Meanwhile, manufacturers continue to enjoy a very robust recovery.

Production rose 2.7 points to a very strong 69.0, while a modest slowdown in new orders to a still solid 63.3 suggests that the rapid ascent in the recovery is peaking, and we may be settling into a strong but sustainable recovery in the goods-producing sector.

Overall, the manufacturing sector, which helped to pull the U.S. economy out of the worst recession in 70 years, continues to lead the expansion.

ISM services confirming recovery kicking into high gear

The ISM survey of the service sector, which takes the temperature of the broad-based service sector, shows that economic activity in the economy continues to heat up.

The Institute for Supply Management reported this morning that the ISM Non-Manufacturing Index increased from 59.4 in January to 54.9 in February, the 15th straight month of growth and the sixth straight month that the measure of activity in the service sector accelerated.

A reading of 50 is an indication that the service sector is neither expanding nor contracting.



Adding to the positive tone of today’s report, the Business Activity component of the index increased 2.3 points to 66.9, the best reading in seven years, while new orders, a proxy for future activity, fell 0.5 points to 64.4 but the robust level is still suggesting strong gains in the economy.

In the meantime, employment continued in its upward trend, rising 1.1 points to 55.6, the highest level in five years.

Nonfarm payroll growth has lagged, according to the monthly report issued by the government, but weekly jobless claims are falling and ADP’s survey continues to suggest the job market is slowly improving.

Pricing concerns
With growth picking up and input costs rising, the prices paid component inched up from 72.1 to an uncomfortable 73.3, hinting that firms are starting to feel some pressure from higher input costs.

The Fed acknowledged yesterday in its Beige Book that companies are beginning to pass along higher raw material costs, but the largest expense for most businesses – wages – has been holding steady.

Don’t expect the Fed to react to anecdotal reports as it is likely to wait for hard evidence that inflation is rising before taking action.  In addition, core inflation is at 1%, so even a gradual increase toward its goal of getting inflation closer to 2% is probably not enough to prompt action.

Even then, it will want to see a significant jump in job creation before shifting away from its focus on unemployment and taking aim at prices.

At last growth kicking into high gear
We are not seeing much action on the job front per government data, at least not yet, but the chart below, which looks at the ISM’s reports on manufacturing and services are indicating that the economic recovery has gained a significant amount of traction in recent months.

And today’s report that jobless claims fell to the lowest in almost three years is among the clearest signs yet that the recovery is ramping up.



With job creation and economic activity closely tied together, is seems likely that nonfarm payrolls will soon be reflecting the sizable improvement we are seeing in economic growth.

ISM Manufacturing Index at best reading in nearly 7 years

As the recovery picks up steam, manufacturing remains the leader and continues to fuel economic growth according to the latest survey by the Institute for Supply Management.

The closely-followed ISM Manufacturing Index increased from 60.8 in January to 61.4 in February, its highest reading since May 2004 and the seventh consecutive month that activity has accelerated.  A level above 50 suggests manufacturing in the U.S. is expanding.



New orders and production remain at very strong levels (68.0 and 66.3, respectively).

With orders rising and survey respondents continuing to report that customer inventories are too low (falling 5.5 points to 40.0), the outlook in the manufacturing sector is likely to remain very upbeat.

Meanwhile, hiring improved from already robust levels, as the employment index increased by 2.8 points to 64.5, the best reading in almost 40 years according to Bloomberg News.

Inflation building?
About the only cloud on the horizon for goods producers is the high cost of raw materials, as the prices paid component held above 80..  Since commodity prices remain high and demand continues to rise, don’t expect any relief on the pricing front anytime soon.

But there is still plenty of slack in the economy, which limits pricing power (unlike regional survey, the ISM index does not measure prices received), and capacity utilization remains well below levels that would suggest inflation might become an immediate problem.

Moreover, the ThomReuters/Jefferies CRB Index, which is an index that measures the price of 19 commodities, is well off the bottom reached in early 2009 but remains well below the peak hit in July 2008.


(Source: Bloomberg)

Still, if demand remains strong, producers will eventually gain the upper hand and start to pass along higher costs, and retail prices could become an issue that the Fed will have to deal with.

ISM employment indices signaling gains

Consumer spending is up, real final sales in the advance Q4 GDP report jumped at its fastest pace since 1984 and the reports out this week on manufacturing and services by the Institute for Supply Management (ISM) show that the economic recovery may finally be kicking into high hear.

I don't want to get swept up in unbridled optimism, as headwinds to growth remain, including the weakness in housing and lingering worries about sovereign debt. But the recent improvement in economic activity suggests that, if history is any guide, a hiring binge by employers may be just around the corner.


(a reading of 50 suggests firms are neither adding to or detracting from staff)

First, a quick disclaimer: monthly correlations between the government’s nonfarm payroll numbers and the ISM Manufacturing Employment and Non-Manufacturing (services) Indices can be somewhat suspect. Still, the trends are favorable and worth highlighting.

Manufacturing has been the unsung hero of what has been mostly a tepid and uneven economic recovery since the summer of 2009 amid the re-stocking of inventories and growth overseas.  And the government’s own data, as well as the ISM survey, reflects an improvement in job opportunities for those looking to produce goods.

But we are not a nation that produces things, as the lion’s share of economic activity in the U.S. occurs in the service sector.  And activity among service providers has been much slower to recover, negating much of the need to boost employment.



Based on recent data from the ISM (see Strong service sector indicates economy is heating up), that is changing.  Further, the closely-followed survey is beginning to detect a pick up employment.

In January, the employment subcomponent, which has been above 50 for six of the last seven months, increased from 52.6 in December to 54.5 in January, the best reading since May 2006!

Because the government and the ISM use different methodologies to calculate changes in the labor force, making a forecast based solely on the ISM’s data is difficult. Still, momentum from the improvement in the economy does appear to be spilling over into the hiring process, suggesting that a significant rise in job growth may be near.

Strong service sector indicates economy is heating up

Up, up and away?

The ISM Non-Manufacturing Index, which gauges activity in the service sector, rose from 57.1 in December to an impressive 59.4 in January, easily topping the consensus forecast offered by Bloomberg of 57.0 and adding to the pile of evidence that the new year is beginning on a very strong note.

A reading of 50 suggests that the service sector, which accounts for most economic activity, is neither expanding nor contracting.



Adding to the positive tone of the report, new orders, which are a signal of future activity, rose 3.5 points to a robust 64.9, while production gained 1.7 points to 64.6.

More impressively, the survey may finally be detecting an increase in hiring, as employment increased 1.9 points to 54.5.

However, price pressures in the early stages of production are rising amid the pick up in the economy, as prices paid rose from 69.5 in December to an uncomfortable 72.1 in January.  Currently, there is little or no retail inflation amid weak wage gains, productivity growth and slack in the economy, but the Fed must stay vigilant as the economy continues to improve.

Strong gains on the horizon?
With Tuesday’s ISM Manufacturing Index popping above 60, coupled with five consecutive increases in service sector activity, it finally appears that the slow and uneven recovery that has done little to dent the unemployment rate over the last 18 months may finally be morphing into much stronger growth.



Anyone who has been searching for work can attest to the fact that companies are still reluctant bring on new staff.  And the uncertainty created by Washington in the form of new regulations, along with delays in extending the Bush-era tax cuts, also played a role last year, according to comments from Fed officials.

But the economy began to show new signs of life late last year, and new fiscal stimulus is in the pipeline, while the Fed shows no signs of adjusting is loose monetary policy in the near term.

With the closely-followed ISM surveys showing that activity in both the manufacturing and service economies are accelerating, a significant jump in employment growth may soon be at hand.

ISM reveals that manufacturing is leading the way

The ISM Manufacturing Index rose 2.3 points in January to 60.8, the best reading since May 2004.

I provide details in my report on Examiner.com and just wanted to offer a few insights here.



Output at the nation's factories are improving at a significant rate, according to the data released in the closely-followed survey.

Following the unusually upbeat internals in the advance 4Q GDP report, a strong finish to 2010 in consumer spending and a reading by the ISM in excess of 60, it becomes very difficult to argue that the economy is not entering into a more robust recovery.

There are still uncertainties that exist, including weakness in housing, debt worries overseas (and of course, fears those worries could wash up on our shores), and a reluctance among banks to lend.

But the growing economy seems likely to spark a rise in hiring, which should put the recovery on a self-sustaining path.  The $64,000 question: when will this occur.  We’ve seen strong gains in the ADP Employment Report over the past couple of months, but government data have yet to confirm such a surge.

ISM non-Manufacturing Index shows recovery is broadening and accelerating

We’ve had a string of solid reports out in the last week, including a drop in weekly jobless claims, gains in manufacturing and retail sales, and today, a report by ADP that the private sector created nearly 300,000 new jobs last month (see ADP report shows huge jump in employment).

But the good news on the employment front is also being shared by a very respectable increase in the ISM non-Manufacturing Index from 55.0 in November to 57.1 in December. A reading of 50 suggests the service sector is neither expanding nor contracting.



December’s gain is the fourth consecutive monthly increase, indicating that the economy is shrugging off the slowdown experienced during the summer.  Further, key subcomponents, new orders and production, posed sizable increases, foreshadowing additional gains during the first quarter of this year.

A couple of notable items, however, the employment index slipped from 52.7 to 50.5, while prices paid continues  to put modest pressure on profit margins.

Employment in focus
Attention is quickly shifting to Friday’s labor report. Despite the very encouraging data from ADP, we’ll need confirmation on Friday when the government is expected to show that employers added 140,000 new positions, per Bloomberg.

That’s up from a lackluster 39,000 in November, which came on the heals of a solid ADP report.  But after the outsized increase from ADP, many investors will be looking for another upside surprise, as government's number carries more weight when it comes to trends in job growth.

Jobless claims are in a downward trend and the number today suggests we may finally be entering a more self-sustaining phase for what so far has been a rather weak recovery.

If we get confirmation on Friday that the ADP figure was not a fluke, we may finally start to see a level of job creation that is needed to make a dent in an unemployment rate that stands near 10%.

ISM shows manufacturing moving along at decent pace

The Institute for Supply Management reported that the ISM Manufacturing Index increased from 56.6 in November to 57.0 in December.

Though just below expectations and not nearly as robust as the more volatile Chicago PMI, today’s number shows that manufacturing continues to expand at a healthy clip and impressive gains in production and new orders suggest further improvement early next year.



In its press release, the ISM noted, "The recovery centered on strength in autos, metals, food, machinery, computers and electronics, while those industries tied primarily to housing continue to struggle.

“Additionally, manufacturers that export have benefitted from both global demand and the weaker dollar. December's strong readings in new orders and production, combined with positive comments from the panel, should create momentum as we go into the first quarter of 2011."

Manufacturing has been and continues to be a bright spot in a tepid recovery that began in the middle of 2009.  The service sector, which makes up the bulk of economic activity, has lagged as the chart below indicates, though the sector has been expanding for about a year.  Wednesday’s release is expected to show another increase.



Recently, the bulk of economic indicators suggest that growth is accelerating, including today’s manufacturing report, a dip in weekly jobless claims below 400,000, recent gains in the Leading Economic Index and the strengthening stock market.

In addition, the just-extended Bush tax cuts, coupled with a partial payroll tax holiday, should aid the economy in the coming months.

ISM provides a different look at the employment picture

Today’s report by the government that nonfarm payrolls grew by just 39,000 is a stark reminder that companies are not creating nearly the number of jobs that are needed to bring down the unemployment rate.

The government’s reports is subject to revisions, and we may see upward adjustments in January and February. In addition, the general trend over the past few months is favorable, but it seems unlikely that any changes will diverge significantly from today’s release.

However, if we look at the employment indexes that are a part of each month’s release of the Manufacturing and Non-Manufacturing Indexes put out by the Institute for Supply Management, the employment picture is not quite as bad as the government report depicts.



With a reading of 50 suggesting that firms are neither adding or detracting from overall employment, the series shows encouraging growth in the all-important service sector, which increased 1.8 points to 52.7, the highest reading in over three years.  And manufacturers continue to show interest in adding staff.

The recovery has picked up steam recently, as evidenced by the upward revision to Q3 GDP, the holiday shopping season is off to a good start and Wednesday’s release from ADP regarding private sector employment was encouraging.

Like the recovery from the 2001 recession, job growth is also likely to be uneven, meaning that it may be too much to expect a consistent upward trend in nonfarm payrolls. 

Though obstacles remain, it may be only a matter of time before nonfarm payrolls more consistently reflect the firmer tone in economic activity.

ISM services signal faster growth

Despite a very disappointing employment report out this morning, the ISM Non-Manufacturing Index, which looks at activity in the broad-based service sector, increased for the third-consecutive month, rising from 54.3 in October to 55.0 in November, the best reading in six months.  A level of 50 suggests activity is neither expanding nor contracting.

Additionally, despite the weak gain in payrolls, the employment subcomponent, rose 1.8 points to 52.7, the highest reading since October 2007.



Much of the data has been suggesting that economic activity is accelerating following a lull over the summer, and the latest look at the service sector, which accounts for most economic activity, indicates the positive trend remains intact.

As the chart below reveals, employment and economic activity are closely correlated.



Growth in employment will eventually come about, but the lag has been frustrating.

ISM Manufacturing survey reveals steady growth

ADP has best employment reading in three years

The ISM Manufacturing Index, which is a national measure of manufacturing, fell from 56.9 in October to 56.6 in November and remained above 50, which marks the line between expansion and contraction, for the 19th consecutive month.



"The manufacturing sector grew during November, with both new orders and production continuing to expand. With the PMI at 56.6 percent, November's rate of growth is the second fastest in the last six months. Exports and imports continue to support expansion in the sector,” the chair of the Institute for Supply Management said.

He added, “Prices moderated slightly during the month, but comments from the respondents express concerns with regard to pricing pressures.”

Manufacturing has been the bright spot in what has otherwise been an uneven and dull economic recovery so far.

However, recent indications suggest that the uneven recovery is beginning to broaden.

ADP report reveals favorable job trend
ADP announced this morning that private-sector employment increased by 93,000 in November, noting that the report suggests and acceleration in job creation and that “the nation’s employment situation is brightening somewhat.”

October’s originally reported gain of 43,000 was revised upward to 82,000, adding to the positive flavor of the release.

The best increase in three years, however, is not enough to bring down the unemployment rate, as ADP was quick to point out that the unemployment rate will likely hold above 9% for all of 2011.

Still, the report, which front runs the government’s labor report by two days, has lagged well behind the nonfarm payroll number for the entire year, and November’s relatively upbeat number is suggesting that Friday’s labor report might pleasantly surprise to the upside. 

At a minimum, last month’s rise is signaling that the recovery is beginning to pick up steam, as companies begin to fill vacancies needed to take advantage of improving markets.

ISM survey of service sector shows small improvement

The Institute for Supply Management reported that its ISM Non-Manufacturing Index rose from 53.2 in September to 54.3 in October, suggesting that the broad-based service sector continues to expand at a modest pace.

A reading of 50 marks the line between expansion and contraction.



The latest survey did reveal that new orders increases, signaling further gains in the months to come. And employment inched ahead. Unlike manufacturing, however, which has been the bright spot in the fragile recovery, the service sector, which makes up the lion’s share of economic activity, has struggled.

Without a more robust recovery in services, any rise in jobs is likely to be limited, and most data, including today’s report, are signaling slow and steady gains.

ISM survey reflects faster manufacturing growth

The Institute for Supply Management reported this morning that its closely-watched gauge of manufacturing showed an acceleration in activity last month.

The ISM Manufacturing Index increased from 54.4 in September to 56.9 in October, exceeding estimates. A reading above 50 suggests that manufacturing activity is expanding.



Manufacturing growth has slowed from its heady pace earlier in the year, but the best reading since May shows that the one bright spot in an otherwise dull economic recovery is not dimming.  Moreover, key subcomponents suggest further gains in the months to come.

New orders jumped 7.8 points to 58.9, and production grew 6.2 points to 62.7.  And survey respondents said they believe customer inventories are still too low, adding to the overall favorable tone.

In the absence of a vigorous recovery at home, an improving world economy has played a big role in lifting the fortunes of U.S. manufacturers. 

Recent weakness in the dollar could also help because it aids U.S. competitiveness.  However, rising raw material prices could cut into profit margins, as prices paid inched up to an uncomfortable 71.0.

Survey comments, reported by the ISM, included:

• "The dollar is weakening again, which is resulting in higher costs for our materials we purchase overseas. It is hurting our profit margins." (Transportation Equipment)
• "Business slowing down but still double digit over last year." (Chemical Products)
• "Currency continues to wreak havoc with commodity pricing." (Food, Beverage & Tobacco Products)
• "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." (Machinery)
• "Our customer base — auto manufacturers — is expanding capacity and making major capital investments." (Fabricated Metal Products)

Despite the upbeat tone from today’s report, the broader economy continues to struggle.  Until consumer confidence improves and the uncertainty hanging over activity lifts, unemployment is likely to remain uncomfortably high.