Wednesday, February 1, 2017

Manufacturing outlook improves

The ISM January manufacturing report was somewhat better than expected (56 vs. 55). Whether this reflects actual improvement or improved sentiment and better things to come is tough to say, but at the very least it is encouraging.

As the chart above suggests, the January ISM manufacturing report is consistent with an improvement in overall economic growth in coming months relative to the anemic 1.9% growth in Q4/16 GDP.

The improvement in the employment index suggests that an increasing number of firms are planning to expand their hiring in coming months.

Manufacturing conditions in both the Eurozone and in the U.S. have been improving for the past several months. Meaningful improvement in the Eurozone economy has been a long time coming and thus is probably not fully appreciated by the market. A coordinated recovery in manufacturing conditions in Europe and the U.S. seems like too much to hope for, but that's what these reports are suggesting.

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