Red Hot New Orders Rate Driving Manufacturing Uptick

On Monday the Institute for Supply Management said that the U.S. factory-sector booked its best performance in more than five years in January. Hiring continued to recover and the rate of month-to-month growth was driven by a red-hot pace of new orders that is now accelerating higher each month.

The ISM report points to exceptional overall growth through the rest of the first quarter. The ISM’s manufacturing index jumped more than 3 points to 58.4 for its sixth straight indication of month-to-month growth. The reading easily beat consensus estimates and even beat the most optimistic of economists surveyed for such┬áconsensus.

In addition the report showed that new orders are now overflowing into backlogs — which jumped a sharp 6 points to 56.0. This is a first for this recovery. Now all three — overall manufacturing, as well as orders and backlog are all growing.

Norbert J. Ore, chair of the Institute stated, “the past relationship between the PMI and the overall economy indicates that the PMI for January (58.4 percent) corresponds to a 5.5 percent increase in real gross domestic product (GDP) on an annual basis.”

We of course are happy to point out that the current chart and outlook matches surprisingly well with our post, chart, and prediction almost a year ago. (No one believed us back then.)

Nasdaq Now Up Nearly 75% From 2009 Low

Earlier, we looked at what the current “dead cat bounce” meant for the Dow Jones Industrial stock index, but with a strong late Friday rally, Nasdaq Index returns have been even more impressive.

Up nearly 75% since the March 10th trough, the tech laden index spiked up another 1.5% on Friday, to close up almost 950 points since its late winter low…
(click to enlarge chart)
Source: Google Finance
Earlier in the week the Philly Fed factory survey registered activity at a 4-1/2 year high. Activity accelerated rapidly in the U.S. Mid-Atlantic region in December the survey showed. “This will mitigate concerns that the factory sector might be slowing,” said Tony Crescenzi at PIMCO.
With the mounting reports of a jobs rebound, the stock market equity gains, and these business climate improvements, US retail consumers will likely be in a merry mood for the final week of Christmas shopping.
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Kansas City Fed: Regional Factory Production Now Net Positive

For the first time in 10 months the Tenth Federal Reserve District is reporting factory production that is now net positive. The Tenth Federal Reserve District encompasses Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The Kansas City Fed released its manufacturing report on Thursday and claimed that “manufacturing activity showed signs of a rebound in June.” The report also shows that firms in the region have net positive expectations for future factory activity.

The net percentage of firms reporting month-over-month increases in production in June was 9, up from -3 in May and -6 in April. The positive production netted increases in both durable and non-durable-goods production plants.

(Source: Kansas City Fed – click to enlarge chart)

Additionally, over half of companies in the region are now reporting satisfaction with their inventory levels.

Large increases also registered in future factory activity indexes from May to June. The future production index rebounded from 1 in May to 13 in June. Sub-indexes for future shipments, new orders, and order backlog all jumped up.

This positive report from the 10th district follows a string of positive manufacturing reports from across the country. Last week the Philly Fed reported its highest activity reading since September 2008. On Tuesday the central Atlantic regional Fed report showed manufacturing advancing considerably faster in June over May. And a week from Monday there was good news lurking under the June headlines for NY’s empire index.