ISM Manufacturing Numbers Under Scrutiny

The ISM Index is the only reading reporting US manufacturing as this strong. The outlook is positive…just not this positive.

According to IHS Global Insight economists, the manufacturing sector is looking better, but not that good.

“The September score doubled-down on the July and August scores with a further half point gain, and orders and shipments scores were both over 60,” says IHS Global Insight US Economist Michael Montgomery.

The ISM for manufacturing has rebounded from a tepid 50.9 in June to a torrid 56.2 in September. The first adjective – tepid – about the late spring matches Census, Labor Department and industrial production descriptions of the world, but the recent ISM scores do not.

The September score for the ISM beats the best score of the first quarter by over two points and manufacturing industrial production was growing at almost a 5% clip in the first quarter. No other data shows such strength. Regional Federal Reserve surveys and the Markit PMI show improvement, but not robust gains.

What strength there is in U.S. manufacturing is coming from a combination of Europe no longer declining and starting to rebound, and a corresponding turning of the proverbial worm in inventories. Inventories typically turbo-charge large and small cycles alike in manufacturing, and a slowing in inventory building cooled U.S. manufacturing in the spring and its end firmed things up a notch in the summer months. Europe’s inventory cycle turning will kick things up a further notch in the fourth quarter, but most likely not to the degree suggested by the ISM data.

IHS Global Insight’s Montgomery remains skeptical:

“We firmly believe the times are better in manufacturing, and the rest of the year looks better still—just not this good when the ISM-manufacturing stands alone in reporting it.”

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