Manufacturing outlook improves somewhat

The February ISM manufacturing indices were generally stronger than expected and consistent with a decent pickup in economic growth in the current quarter compared to the dismal growth of last quarter.

The overall manufacturing index came in at 54.2 vs. an expected 52.5. As the chart above shows, this is consistent with economic growth in the current quarter of 3-4%, a big jump from the 0.1% growth rate of the fourth quarter. This view is supported by the New Orders index, which has rebounded significantly this year from 50 in December to 57.8 in February.

The Export Orders index picked up nicely, a welcome sign that the troubles in the Eurozone, which has been in recession for the past year, are not a significant drag on the U.S. economy. Globally, conditions outside the Eurozone appear to remain healthy.

The Prices Paid index remains at a level that is consistent with ongoing, mild inflation.

The Employment Index is mildly positive, but does not point to any meaningful strengthening in manufacturing in the near future.

According to the ISM indices, the outlook for the U.S. economy remains substantially better than for the Eurozone economy. Eurozone manufacturing reflects an ongoing mild recession; the best that can be said is that conditions in the Eurozone are not deteriorating further.