Monday, August 3, 2015

Manufacturing bouncing back strongly

Economics in a nutshell: The manufacturing sector is bouncing back strongly and that is the clearest sign that any government-induced slowdown is behind us.

Manufacturing bouncing back strongly

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INDICATOR: Supply Managers' November Survey

KEY DATA: ISM (Manufacturing): 57.3 (up 0.9 point); Orders: up 3.0 points: Employment: up 3.3 points; Backlogs: up 2.5 points.

IN A NUTSHELL: "The manufacturing sector is bouncing back strongly and that is the clearest sign that any government-induced slowdown is behind us."

WHAT IT MEANS: The incompetent Congress couldn't even succeed in killing the economy, though it tried as hard as it could. Whatever negative impacts may have come from the threats and then the reality of the shut down and sequester is basically gone. The manufacturing sector is starting to accelerate, according the Institute for Supply Management. The November numbers were robust as activity jumped. The overall activity measure hit its highest level since April 2011, powered by rapidly growing orders, production and most importantly, hiring. Growing backlogs indicate these gains should be sustained. Indeed, customer inventories are too low and that could mean more order growth is on the horizon.

MARKETS AND FED POLICY IMPLICATIONS: With housing holding in, vehicle sales solid and construction picking up, is it really a surprise that the manufacturing sector is doing better? Not really. The economic data are sending a very clear signal: People on Main Street may worry about Congress but they don't make decisions based on the craziness going on in Washington. The fourth quarter is likely to be better than feared, at least as far as the private sector is concerned. The federal government is a different story. This Friday we get the November employment numbers and they could be decent. That could create some real confusion in the markets especially if the unemployment rate dips as I expect. Janet Yellen signaled that it's the economy that matters and that means more jobs, a lower unemployment rate and faster wage gains. While a second good employment report would not be nearly enough to change anyone's thinking at the Fed, it would raise questions as to how long it will be before tapering begins. Thus, while this is a big week for numbers, all eyes will be on Friday and investors should approach it warily.

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About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel L. at joel@naroffeconomics.com .

Joel L. Naroff
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