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By HaleStewart December 5, 2013 8:10 am
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ISM Manufacturing Report Indicates US Economy May Be Stronger Than Thought

Since the end of the Great Recession, the US economy has been growing close to a 3% growth rate.  While this is obviously better than 0% growth, it is not strong enough to warrant employment growth beyond that which absorbs natural population growth,  In fact, the growth situation has become so concerning that some economists are wondering whether the US is now in a period of structural slower growth.

However, the latest ISM manufacturing reports have been very bullish, especially when looking at the underlying data (also see this post from NDD on the topic).  While placing too much emphasis on one report is never a good idea, its hard to overlook the strength we've seen in the latest numbers.

Let's start by looking at the list of anecdotal comments contained in the report, as these are representative of the general comments received from respondants:

  • "Seasonal demand has not decreased at the typical pace." (Primary Metals)
  • "Incoming order rate remaining strong." (Fabricated Metal Products)
  • "Outlook for the remainder of the year and into 2014 is trending positive." (Chemical Products)
  • "Overall business climate is good. Business is steady." (Transportation Equipment)
  • "Sequestration and cutbacks in defense spending continue to impact business." (Computer & Electronic Products)
  • "Market continues to be stronger than normal for this time of year." (Wood Products)
  • "Getting much busier toward the end of the year." (Furniture & Related Products)
  • "Seeing consistent uptick in demand." (Food, Beverage & Tobacco Products)
  • "Federal debt, deficit and inefficiency are causing a level of caution and uncertainty." (Machinery)
  • "Ordering for 2014 seems to be increasing in comparison to the past six months." (Miscellaneous Manufacturing)

The vast majority of participants observations are bullish.   Business in not slowing down as is typical of the year-end; there is an actual uptick in demand; orders in anticipation of 2014 are increasing.  These vignetes indicate that underlying business is good.  But perhaps more important is the belief among market participants that things are getting better.

Also consider that the overall PMI level has been increasing as shown in this graph:

Note the continual increase since the May reading.

And finally, consider the strength seen in the new order numbers, which have printed above 60 in each of the last four months:

While no one should place too much emphasis on one economic number, it's hard to overlook or overstate the strength in the latest ISM readings or the very bullish trend that is developing in the report.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

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