November 2013 ISM
“An investment trend is a friend until it ends”. Not sure how much practical wisdom is in this old trading adage, but it’s clear the favorable trend in manufacturing did not end last month. Most importantly, judging by new orders (the all-important leading indicator within the report), and the lack of excesses in inventory levels, the manufacturing renaissance trend is a long way from being over.
While the table below captures the release details, in the ISM’s own words they sum it as follows:
Over the course of 2013, popular economic statistics have reflected not only the grind-forward nature of this economic expansion but have been additionally burdened by the impact of the federal government sequester. One bright spot “under the hood” within this situation has been the growth in the manufacturing segment of the economy. As the impact of the sequester is annualized in the New Year ahead, the pace of overall economic growth (GDP) may come closer to reflecting the historical relationship suggested by the PMI mentioned above that is highlighted in yellow.
3% – 4% GDP growth would/will very likely refuel Federal Reserve “tapering” chatter and trigger a resumption in the normalization of bond yields at higher levels. Meanwhile, a rise in yields caused by improved perceptions of the economy’s resiliency would/will be a continued favorable backdrop for stocks in general and particularly for those companies positioned to benefit from the manufacturing renaissance.
Dec. 2 (FactSet) — Following is a summary of U.S. manufacturing conditions from the Institute for Supply Management (ISM).
NOTE: All figures except backlog of orders, customer inventories, imports, exports, inventories & prices paid are seasonally adjusted. The diffusion index is calculated by adding the percent of positive responses plus one half of those responding the same.