ISM Manufacturing Index Research Notes

by Jim Baird on March 1, 2013

CaptureManufacturing sector improves again in February

The ISM Manufacturing Index came in at 54.2 for the month of February, an unexpected improvement over January’s survey results and the best result since June 2011.

After dipping fractionally below the critical 50 mark in November, the Index has moved steadily higher in recent months, entrenching itself above well above the threshold that indicates expansion in the manufacturing sector.  

Today’s report, coupled with the better-than-expected result for ex-transportation durable goods released yesterday, suggests that the nation’s manufacturers continue to expand modestly despite the marked slowdown in the economy late last year.  Nonetheless, it’s clear from a broader look at manufacturing sector data that its strength still varies by region across the country.

The increase in the composite index was driven by improvement across a number of key components, included advances in new orders, production, and backlog.  The employment component slowed modestly, suggesting that the pace of hiring is ebbing, although hiring trends remain constructive.

The ISM report takes a little bit of sting away from the sharp decline in personal income in January.  The decline wasn’t surprising, given the uptick in December that was driven by the payout of year-end bonuses and outsized dividends in anticipation of higher income tax rates.  Nonetheless, the degree of the decline in January is indicative of another setback to households that have experienced very limited growth in income in recent years.

Today’s report fails to materially change the near-term outlook for the economy, which remains murky.  While manufacturing appears to be on a modestly improving footing, the consumer sector remains vulnerable.  Downward pressure on discretionary income is likely to keep spending in check in the months ahead.  Confidence has been improving, but the looming cuts in federal spending could throw some cold water on that emerging optimism.  The combined effect of higher payroll taxes, rising energy costs, limited income growth, and the still elevated jobless rate will remain significant headwinds to household spending in the months ahead.

To see news coverage featuring Jim’s comments, please visit the following site:

Stocks inch higher on manufacturing data (CNNMoney)

Previous post:

Next post: