Thursday, January 2, 2014

Solid manufacturing report

The December ISM manufacturing indices released today all reflect solid activity for the sector which is likely to carry over into the new year.

As the chart above suggests, recent readings of the ISM manufacturing index are consistent with overall GDP growth of at least 4%. More importantly, conditions appear to have been improving somewhat in recent months. Q4/13 real GDP growth is widely expected to be less than 4%, however, but if that proves to be true, it is likely to reflect only a temporary slowdown.

The export orders index dropped in December, but remains at a respectably healthy level.

The employment index (first of the above two charts) and the new orders index (second of the above two charts) have improved meaningfully in the past six months. Both suggest that manufacturing conditions will be improving in the months to come.

As the first of the above two charts suggests, manufacturing conditions in the Eurozone have improved significantly over the past year, and are now tracking improvement in U.S. manufacturing. A sluggish eurozone was a drag on U.S. growth for most of the past 2-3 years, but that has now changed for the better. As the second of the above two charts suggests, and improvement in swap spreads was a leading indicator of an improvement in the eurozone manufacturing sector. There's every reason to expect both eurozone and U.S. manufacturing activity to continue to improve in coming months.

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