Tuesday, March 1, 2011
The February ISM survey of manufacturers was strong across the board, exceeding expectations. This first chart of employment is almost "off the chart" strong, since it is by far the strongest reading since 1973: almost two-thirds of firms surveyed reported plans to increase hiring.
As this next chart shows, more firms are seeing increased demand from abroad. The weak dollar is undoubtedly contributing to the general strength in exports that we've see for awhile, but this also reflects the fact that global growth is strong, and that provides a healthy backdrop for just about everything.
The prices paid component of the ISM survey moved higher, as 82% of the firms surveyed reported paying higher prices. This could simply reflect the rising cost of energy, as the chart above suggests, but it more likely reflects broad-based rises in most commodity prices as well. Those who look for inflation at the consumer level to remain subdued, in the face of an avalanche of price hikes at the producer level, believe that firms will simply absorb higher input costs into their profit margins and not pass along price hikes to their customers. I don't know about you, but yesterday I received a notice from my health insurance carrier and from my phone/internet/TV provider that they are raising the price for their services. I expect to see more such notices over the course of the year.
Add it all up and you get a very strong ISM index. As this chart suggests, the strength of the manufacturing sector is consistent with overall GDP growth well in excess of what we have seen in recent quarters. I would be very surprised if Q1 and Q2 growth were not at least 4%, based on this chart and the growing number of indicators reflecting improvement (e.g., truck tonnage, plus my two dozen bullish charts).
Posted by Scott Grannis at 8:39 AM