Manufacturing industries start to rock and roll in a summer concert
The ISM manufacturing industries composite index rose by 4 points to break decisively through the 50 threshold in August.
The overall index has climbed steadily for 8 months from the deep recessionary trough of 32.9 in December 2008.
The production index has accelerated for the third consecutive month.
New orders catapulted by 9.6 points – with domestic orders clearly picking up further momentum.
New export orders jumped by 5 points to 55.5.
The employment index edged a little higher, but still remained below 50, indicating mild downward pressure on manufacturing employment in August.
The prices paid index jumped by 10 points to 65.0 – prices are picking up as inventories are extremely low and supply chain pressures are already building.
The August ISM report shot the lights out in terms of broad-based gains across all key indicators. The production index has accelerated for three consecutive months, indicating that recent positive developments in auto sales and residential construction are definitely adding considerable upward momentum to the manufacturing sector.
New orders catapulted by almost 10 points to 64.9, propelled by broad-based strength both in domestic orders and overseas orders. Indeed, overseas orders have rebounded in the past several months with a distinct V-shaped pattern, indicating that the global economy is picking up considerable momentum.
While the rate of contraction of inventories eased ever so slightly, the ratio of new orders to inventories spiked into the stratosphere at 1.89, suggesting a further acceleration in production momentum in September.
Clearly, the improved picture for third quarter auto sales and production – in conjunction with a strong July gain in residential construction activity and clear evidence of broad-based improvements in the global economy – are adding considerable momentum to the turning point in the business cycle.
While there may be some pull back in the fourth quarter of 2009 related to the recent expiry of the “cash for clunkers” program and the expected expiry of the first-time home buyers credit in November, the pick up in momentum exhibited by the global economy suggests that there is less risk that these fiscal stimulus speed bumps will morph into a show-stopper in terms of the sustainability of the recovery in 2010.