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By HaleStewart February 5, 2014 5:45 pm
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US ISM Reports Point To Stronger Economy

The last two quarters of GDP reports for the US have been very bullish with prints of 4.1% and 3.2%.  However, recent data has left the markets concerned.  Durable goods orders recently dropped, the housing sector is slowing and auto sales dropped more than expected.  However, if we are to believe the anecdotal data from the latest ISM reports, the economy is still doing well with a good future.

Let's start with the latest anecdotal reports from the manufacturing sector:

  • "We are seeing slight improvements, year-over-year, month-to-month, across most regions and business segments." (Apparel, Leather & Allied Products)
  • "Poor weather impacted outbound and inbound shipments." (Fabricated Metal Products)
  • "Good finish to 2013, but slow start to 2014, mostly attributed to weather." (Petroleum & Coal Products)
  • "U.S. government aerospace business is very brisk." (Transportation Equipment)
  • "Slight improvements in defense business. But still lagging from previous years." (Computer & Electronic Products)
  • "Cautiously optimistic about increasing volumes but still challenging, and margins remain low." (Chemical Products)
  • "We have experienced many late deliveries during the past week due to the weather shutting down truck lines." (Plastics & Rubber Products)
  • "We continue to be busy, working six days, 24 hours a day." (Primary Metals)
  • "Restricted optimism heading into Q1." (Machinery)
  • "Delays in government product certification due to the partial government shutdown last year are still negatively impacting delivery and inventory levels." (Miscellaneous Manufacturing)

Most of the reports indicate business is going well.  Also note the proponderance of weather related problems: deliveries were delayed by weather in several instances.  But, aside from that, the overall tenor is positive. Here's a chart of the ISM manufacturing data for the last 10 years:

While the recent number did drop, the reading is still above 50.

We see the same conditions in the non-manufacturing report.

  • "Slight increase in business being seen currently." (Management of Companies & Support Services)
  • "Business conditions continue to improve." (Information)
  • "Activity picking up on new-year projects." (Finance & Insurance)
  • "All phases of the business seem to be getting stronger and have good first half-year outlooks and booked business." (Professional, Scientific & Technical Services)
  • "Sales has shown signs of improvement, but lack a sustained pattern to build confidence." (Retail Trade)
  • "Casual dining remains challenging, tends to slow after the holidays." (Accommodation & Food Services)
  • Intense weather in several areas of the country is perceived to have contributed to a slow start in what otherwise is historically a strong month." (Wholesale Trade)

Conditions are picking up or improving.  In addition -- and like the manufacturing sector -- weather is hampering expansion efforts.

The 10-year chart shows a consistently strong set of numbers.

The anecdotal reports are included because they are representative of the respondant's comments to standard questions.  The above responses indicate the US economy -- once it gets through the prolonged wintery conditions -- should continue growing solidly.

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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