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By New_Deal_democrat December 3, 2013 10:21 am
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ISM Manufacturing indicates 3%+ 4th quarter US GDP growth
At the beginning of 2013, I forecast that the performance of the US economy would improve in the second half, due to the then-improving numbers in the long leading indicators of interest rates, housing permits, real money supply, and corporate profits.  In the 3rd quarter, that proved correct, as the preliminary GDP report came in at +2.8% annualized, after 1.2% in the 1st quarter and 2.5% in the second quarter.
 
Yesterday's ISM manufacturing report, with both the overall index and the new orders index component reported over 60, bodes well for the 4th quarter US economy as well.
 
Below is a graph of the New Orders index of the ISM report going back 30 years to 1984 (red), compared with annualized real GDP (blue).  The bars have been set so that any ISM new orders report over 60 shows as positive, any under 60 shows as negative.  Similarly,  any GDP report indicating over 3% annualized growth  shows as positive, and any with growth less than 3% annualized growth shows as negative:
 
 
As you can see, when the quarterly average of ISM new orders tops 60, almost always real GDP growth tops 3%,
 
Now here is a close-up of the last 10 years:
 
 
With the sole exception of the 3rd quarter of 2009, just coming out of the Great Recession, and one quarter of 2004 (showing 2.5% annualized growth), the pattern still held.  (At the moment, analysts are expecting 3rd quarter growth to be revised higher as well).
 
The October and November ISM reports were 60.6 and 63.6, respectively.  Unless the December report falls to under 56.0, the 4th quarter average is also going to wind up over 60, suggesting 3% or higher US GDP growth this quarter.
 
For what it's worth, this also suggests that monthly job growth will continue at a minimum of 140,000 a month for now.
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