ISM Manufacturing Index Update & Breakdown February 2018 Monthly Update Based On The Leading ISM Manufacturing Index
What Is This Report About? (1/2) This presentation breaks down the latest ISM manufacturing report All indicators are leading which means that you are about to find out what we can expect to happen in the future. They predict coincident indicators like industrial production, new orders and lagging indicators like GDP growth.
What Is This Report About? (2/2) I made an overview of all interesting segments to give you a breakdown of the US economy The following topics will be discussed: Composite index New orders Prices Employment All 18 manufacturing industries (+ insider comments) Note that the indicators presented will have a meaningful impact on the segment they are covering. Higher composite outlook -> stronger GDP growth Higher employment > tailwind for employment growth Higher prices -> higher CPI inflation Higher industry score > more support for companies/stocks within a certain industry
Composite Index In my most recent article about regional manufacturing surveys, I wrote that an ISM increase is extremely likely. Experts predicted a decline. What happened is that the ISM index hit 60.8 in February. This is the highest level since 2004! The most recent growth acceleration trend is much stronger than 2014 and does not seem to peak. This means that we can expect even higher industrial production numbers and new orders going forward.
New Orders New orders dropped from 65.4 in January to 64.2 in February. This does not mean that we are seeing a peak, it just means that momentum to the upside is dying. And I am not surprised given the high level of the ISM index. Most recession years like 2010 and 2011 saw the same.
Prices Last month, I discussed the inflationary pressures from a weaker dollar and rising commodities. At this point we are seeing that the ISM price index has reached 74.2. This is another increase in an already hot inflation environment. On the next page, I uploaded my regional manufacturing prices indicator to give you an even better view of the situation. The next slide shows a chart I showed in my regional manufacturing survey presentation. I think it adds value given that it has predicted the current ISM prices increase
Prices Received Prices received have crossed 20 in February indicating consumer prices growth to hit more than 3.5%. Regional prices also indicated the rising ISM prices index you just saw and put even more pressure on US government bonds and yield trades like consumer staples in general.
Employment Employment soared 5.5 points to 59.7 in February. This is another try to break 2017 highs and a signal of further labor market tightening. You will also find evidence of this in the comment and overview section at the end of this presentation. Companies are seeing both strong input inflation, pressure from rising wages and massive labor shortage. All of this adds to the previous slides that discussed rising prices.
ISM Industry Charts The next few slides give you an overview of sentiment in all 18 manufacturing industries This sentiment is based on the 12 month totals of every month s reading I always try to look for uptrends or indicators that remain at elevated levels for an extended period. Simply because these indicators move between -12 and +12. Tip: if you want to have a total breakdown of all sub-industries per industry, you will find interesting information on the BLS website. E.g. https://www.bls.gov/iag/tgs/iag333.htm (Machinery)
ISM Industry Charts
ISM Industry Charts
ISM Industry Charts
ISM Industry Charts
ISM Industry Charts
ISM Breakdown & Comments
Takeaway The US economy is back after dipping in January. Growth is at a 14-year high after a massive acceleration trend that started in Q1/2016 New orders are signaling a lack of momentum to the upside on the short term Prices are further accelerating and will soon hit official CPI/PPI numbers. So don t be surprised when financial journalist suddenly talk about rising prices Yield trade are likely to keep underperforming given the rising inflationary risks Cyclical industries are showing strong sentiment while comments are overall very bullish The labor market is further tightening Wages should see further growth in February and on the mid-term in general
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