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What to Make of the ISM Manufacturing Report? $

For the first time in a long while, not only Armada Think Tank analysts but also a number of national economists are questioning what we are seeing in the ISM manufacturing figures for February. There isn’t a problem, the ISM figures for manufacturing were spectacular. Take a look at the matrix below from the ISM. The composite, New Orders, Production, Prices, Backlog of Orders, Imports and Exports were all up in the month. Even customer inventory figures were positive because they dropped (signaling that they are more likely to order replacement inventory in the near future).


If we had looked at the rest of the economic news out on Friday including figures coming from ISM reports in Europe and Asia, we would have expected the ISM report to be down (or much weaker than this report). So what happened? Why was the national story so much different from several of the regional manufacturing reports and why was the United States so much stronger than other global markets?


That’s a difficult question to answer. But, perhaps it was the delay created by the Fiscal Cliff fears. We did see that inventory building activity was very weak for the US in the fourth quarter of last year. We wrote about this in the lead article in today’s brief. This could have been a reflection on how long it took companies to get over the tax “deal” struck in Congress, the Chinese New Year, and the resulting push to rebuild inventory in late February and March. Given some of what we are hearing in the broader automotive sales reports for February, we are hearing that sales were strong and demand for automobiles are still driving a lot of manufacturing activity.


If there was anything in the report that would be of concern, it would be the pricing component. Prices have risen above 61.5, a 5 point jump from January. Higher energy prices are likely to blame for this increase so this isn’t necessarily a long-term inflationary trend to worry about.


Again, overall this is about the strongest report since mid-2011, so something very large happened in manufacturing in February. The ISM report has been too accurate historically for us to believe that there was anything wrong in the data. Let’s take a positive report amid a bunch of poor broader economic news and run with it.

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