Good News for the Manufacturing Sector

By Robert Hughes

 

During an 18-month campaign, primary, and election process, newly-elected President Donald Trump focused heavily on the manufacturing sector in the U.S. Today, the Institute for Supply Management (ISM) and ADP, the payroll and human resources service, provide current data on activity in that area. The ISM released its monthly Report on Business for January, a survey of purchasing managers for businesses in the manufacturing sector. The overall index, the PMI, rose 1.5 points to 56.0, where 50 is neutral, above 50 indicates expansion and below 50 indicates contraction. The PMI has been above 50 for five consecutive months.

Details among the key subcomponents of the PMI look favorable as well. The new orders component rose to 60.4 from 60.3 in December, while the production index rose to 61.4 from 59.4.  Like the overall PMI, both subcomponents have been above 50 for five consecutive months.

The third noteworthy subcomponent is the employment index. This index rose 3.3 points to 56.1 in January from 52.8 in December. The strong signal from the ISM employment index is corroborated by a similarly strong result from payroll processor ADP. ADP estimates monthly employment for the U.S. based on customer payroll activity.  For January, ADP estimates that the overall private sector added 246,000 new jobs, with manufacturing accounting for 15,000. A 15,000 gain for manufacturing for one month is a generally strong performance.

Today’s data fit with AIER’s view of the economy. The Leaders index component of our Business-Cycle Conditions indicators has shown improvement over the past four consecutive months, rising to a reading of 75 for December. Readings above 50 suggest a low probability for a recession in the months ahead. Though it is likely to be quite some time before any new policies from the Trump administration have a significant impact on manufacturing activity, today’s data suggest the manufacturing sector is doing a bit better.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.