At 10:00 A.M. (EST), we received our last report of the week on the U.S. economy when the Institute for Supply Management, a Tempe, Arizona-based trade group, released its latest reading on manufacturing activity. At first blush, the report was a positive snapshot of the U.S. economy, which, based on the series of data released this week, continues to press forward at a very measured pace right now.
Specifically, the PMI came in at 53.1 percent for the month of January. That figure was up markedly from the revised December figure of 50.2 percent and exceeded consensus expectations. The latest reading, which was the best showing since April, 2012, also marked the second straight month of expansion in the manufacturing sector and the 44th consecutive month the overall economy grew according to this survey. A PMI in excess of 42.2 percent, over a period of time, generally indicates an expansion of the aggregate economy. The PMI averaged 51.6 for the 12-months ended January, 2013.
When broken down into component parts, the latest result was even more impressive. Of the 18 manufacturing industries, 13 are now reporting growth. Indeed, new orders, production, employment, and inventories rose nicely in the latest month. Those advances more than offset some slippage in supplier deliveries, backlogs, imports, and exports. The overall growth in this important sector of the economy, along with an employment report earlier today, that showed the nation added 157,000 jobs last month, may be an indication that Wednesday’s report that showed a 0.1% contraction in the nation’s GDP during the fourth quarter of 2012 was likely a one-time event and that expansion should resume in early 2013, even if at a very measured pace initially.
As noted, the manufacturing report capped what was a very busy, and most notably, mixed week for the U.S. economy. Disappointing reports on fourth-quarter GDP, consumer confidence, and weekly initial jobless claims were offset by strong data on durable goods orders, home prices, personal income, and manufacturing activity. There were few surprises of note in today’s employment report. Our sense is that this manufacturing report was a big sigh of relief for investors, as the sector is a vital component of the U.S. economy and good news on this front will go a long way in helping the economy get back on a growth track in 2013.