Tuesday, March 01, 2011

Feb. ISM Manufacturing Index: Highest Since 1983

From today's "Manufacturing ISM Report On Business":
"Manufacturing continued its rapid growth in February as the PMI registered 61.4 percent, an increase of 0.6 percentage point when compared to January's reading of 60.8 percent. This is also the highest PMI reading since May 2004 when the index also registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting."

MP: Some of the categories in the index that listed as both "growing" (for direction) and "faster" (for rate of change) are: new orders, production, employment, exports, manufacturing sector and overall U.S. economy.   And prices! 

The February index of 61.4 matched the May 2004 reading, and before that you have to go all the way back to December 1983 to find a higher PMI index. Manufacturing continues to be the "shining star" of the U.S. economic recovery.

Updates: a) Link to the report is fixed, and b) Scott Grannis predicts real GDP growth of 4% or higher for Q1 and Q2 based on today's strong ISM report.   

15 Comments:

At 3/01/2011 10:53 AM, Blogger morganovich said...

the prices index was 82, up .5 from jan vs an orders index at 68, up .2.

http://www.ism.ws/ismreport/mfgrob.cfm

* "A continued weak dollar is increasing the cost of components purchased overseas. It is going to force us to increase our selling prices to our customers." (Transportation Equipment)
* "We continue to see significant inflation across nearly every type of chemical raw material we purchase." (Chemical Products)
* "Our plants are working 24/7 to meet production demands." (Fabricated Metal Products)
* "Prices continue to rise, while business limps along at last year's pace." (Nonmetallic Mineral Products)
* "Overall demand is off 10 percent." (Plastics & Rubber Products)


so, some optimism here, but mostly fear about inflation that is already occurring and more to come.

the prices index is "increasing" at a "faster" pace in a 20 month uptrend.

this seems to provide some pretty strong evidence against the "there's no inflation" camp.

if these price hikes were being eaten by the sellers and not passed along to consumers, profit margins would be contracting, but they are not.

 
At 3/01/2011 11:38 AM, Blogger Buddy R Pacifico said...

From the ISM Report:

" New orders and production, driven by strength in exports in particular, continue to drive the composite index (PMI."

Most of the growth in U.S. GDP lately, has come from Export growth.

 
At 3/01/2011 12:33 PM, Blogger Benjamin said...

The "weak" dollar is working! Die, recession, die, die, die!

Dudes: It is unfortunate that the terms "weak" or "strong" have become standard for describing the exchange rate of the US dollar.

I prefer the term "trade enhancing" to describe the US dollar now. It is at a level that will enhance trade, and exports.

From Econ 101, C+I+G+(X-M)= GDP.

Exports go up, then GDP goes up.


Bring on the "weak" dollar. We need such "weakness" forever. I hope the dollar sinks below Pluto's Underworld. It can't get cheap enough.

Morgan:

* "Our plants are working 24/7 to meet production demands." (Fabricated Metal Products)

Your regard this as a negative?

 
At 3/01/2011 12:34 PM, Blogger morganovich said...

buddy-

prices were up as much as exports implying no change in real terms.

i am wondering what to make of this steep drop in inventories. the "too low" reading would seem to imply that meeting future orders may be difficult and and that prices will see yet more upward pressure.

i'm just speculating here, but might this be a result of increases in input costs putting pressure on working capital and driving inventories down?

 
At 3/01/2011 1:17 PM, Blogger Buddy R Pacifico said...

morganovich stated:

"prices were up as much as exports implying no change in real terms."

M, I think you are wrong about this. An export is usually a longer term process. Prices are usually agreed to many months ahead of shipment. Recent price surges in materials and inputs would not have been a factor, yet.

Looking to the new quarter, Exports will have to stay ahead of new price growth, or else you will then be correct.

 
At 3/01/2011 1:22 PM, Blogger morganovich said...

buddy-

go look at the press release yourself:

http://www.ism.ws/ismreport/mfgrob.cfm

i think you'll see that i am correct about prices.

 
At 3/01/2011 1:26 PM, Blogger morganovich said...

benji-

"* "Our plants are working 24/7 to meet production demands." (Fabricated Metal Products)

Your regard this as a negative?"

nice cherry pick.

i think if you go back and read what i wrote, you'll see that i said "some optimism here, but mostly fear about inflation that is already occurring and more to come."

so yes, the one quote of 5 you pick shows optimism, but how about the other 80%?

"Overall demand is off 10 percent." (Plastics & Rubber Products)" is that optimistic?

how about this one?

""Prices continue to rise, while business limps along at last year's pace." (Nonmetallic Mineral Products)"

and then of course, the first two which also express inflationary fears.

i think my statement was a very realistic expression of the data.

also note that "Our plants are working 24/7 to meet production demands" sounds awfully inflationary, no?

 
At 3/01/2011 1:44 PM, Blogger Buddy R Pacifico said...

morganovich, going back a couple of months and now:
November 2010 ISM Report states " In November, the percentage of respondents reporting higher prices is 28 percent, the percentage indicating no change in prices paid is 67 percent..."

The February Report states "While 66 percent of respondents reported paying higher prices..."

Thus, Export contracts signed a couple of months ago when 28% stated prices higher vs. 66% last month. Exports need to stay ahead of prices or else you will be right.

 
At 3/01/2011 1:51 PM, Blogger juandos said...

Hmmm, not evryone sees it this way:

US Department Of Truth Goes Full Retard After ISM Employment Index Prints At Highest Since 1973


The total farce that is US diffusion index data continues, with the manufacturing ISM printing at 61.4 on expectations of 61.0, and compared to 60.8 previously...

 
At 3/01/2011 2:34 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 3/01/2011 2:36 PM, Blogger morganovich said...

buddy-

"Thus, Export contracts signed a couple of months ago when 28% stated prices higher vs. 66% last month. Exports need to stay ahead of prices or else you will be right."

this pre-supposes that futures prices were the same as spot prices. many commodity markets have been front running this for some time.

also note that the .5 price hike is a trailing number from jan.

it's already here. it may be that this is the pricing from a few months ago when it was signed that is already up so much.

 
At 3/01/2011 2:39 PM, Blogger Benjamin said...

Ron H.

I wish I was on the beach everyday.

That said, explain again how at your college they taught you that a lower exchange rate for the dollar decreased imports, and so therefore X-M remained the same?

Let's see: A Cheap dollar boost exports (X) and decreases imrpots (M).

GDP=C+I+G+(X-M).

Hmmm. X goes up with cheap dollar, and M goes down.

So...GDP does what?


Ron H., I think you had a very novel college education. I hope you are not a student of Dr. Perry.

Do you want to rephrase what you said?

 
At 3/01/2011 2:47 PM, Blogger Ron H. said...

Benji

"That said, explain again how at your college they taught you that a lower exchange rate for the dollar decreased imports, and so therefore X-M remained the same?"

Wait! wait! I guess I need to rephrase that.

Actually, it wasn't college where I went wrong, it was that one day I missed in second grade. I'll delete that comment before I reap any more well deserved ridicule.

 
At 3/01/2011 2:55 PM, Blogger Ron H. said...

Benji

I remember now. It was that darn Mrs. Smith, my second grade teacher, who tried so hard to ensure a positive experience for her little tykes, that she allowed nothing negative in class - not even numbers.

 
At 3/01/2011 3:41 PM, Blogger morganovich said...

buddy-

also worth noting:

these indexes and component indexes are set up so that a reading over 50 implies expansion.

exports are at 62. prices are at 82. both are in 20 month uptrends, but the trend in prices has been much steeper.

keep in mind that these absolute levels matter.

if prices were at 82 and exports at 62 again next month (zero change in either) that would still mean that prices are going up faster than exports.

 

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