Positive Trends In The ISM Numbers

Everyone is waiting for the February employment numbers tomorrow morning to put an exclamation point behind the story of a recovering economy. Personally, I think the ISM report today already took care of that bit of punctuation.

Here is what ISM said:

Economic activity in the manufacturing sector expanded in March for the eighth consecutive month, and the overall economy grew for the 11th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The manufacturing sector grew for the eighth consecutive month during March. The rate of growth as indicated by the PMI is the fastest since July 2004. Both new orders and production rose above 60 percent this month, closing the first quarter with significant momentum going forward. Although the Employment Index decreased 1 percentage point to 55.1 percent from February’s reading of 56.1 percent, signs for employment in the sector continue to improve as the index registered a 10 percent month-over-month improvement, indicating that manufacturers are continuing to fill vacancies. The Inventories Index provided a surprise as it indicated growth for the first time following 46 months of liquidation — perhaps signaling manufacturers’ willingness to increase inventories based on expected levels of activity.”

You can pick out negatives in the report but the apparent willingness of manufacturers to begin building inventory is big. Jake at EconomPicData.com has this chart:

jake inventories february ism

Clearly, there’s a sentiment shift occurring among the nation’s manufacturers. Put it together with improvements, modest though they may be, in auto sales, hotel occupancy, consumer sentiment and consumer expenditures and you start to see the makings of a self-sustaining recovery.

Granted it might not be a robust recovery given the high level of under- and unemployment, the mess in the residential and commercial real estate sectors and the dire financial straits of many states, but for the time being it appears as if those drags on growth are being overcome. Once an economy of this size establishes momentum it tends to feed off of itself. A lot of things could happen to knock it off the tracks again, but the odds are that slow recovery is the likely course.

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