The December 2009 Manufacturing ISM Report On Business was released today. The report indicated expansion, more than last month’s report. The ISM PMI (Purchasing Managers’ Index) came in at 55.9, up from 53.6 last month. This came in above the Bloomberg consensus range of 52.0 to 55.5. The notes on employment and inventories are of primary interest to me. First, employment:
ISM’s Employment Index registered 52 percent in December, which is 1.2 percentage points higher than the 50.8 percent reported in November. This is the third month of growth in manufacturing employment, following 14 consecutive months of decline. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Seven of the 18 manufacturing industries reported growth in employment in December in the following order: Apparel, Leather & Allied Products; Printing & Related Support Activities; Petroleum & Coal Products; Paper Products; Transportation Equipment; Machinery; and Electrical Equipment, Appliances & Components. The eight industries that reported decreases in employment during December — listed in order — are: Wood Products; Textile Mills; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products.
This is a pretty remarkable improvement, particularly because the rebound in inventories, which must eventually happen for a rebound to take hold, has yet to truly materialize.
Manufacturers’ inventories:
Manufacturers’ inventories contracted at a slower rate in December as the Inventories Index registered 43.4 percent. The index is 2.1 percentage points higher than the November reading of 41.3 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
The six industries reporting higher inventories in December — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Transportation Equipment; Machinery; and Computer & Electronic Products. The nine industries that reported decreases in inventories in December — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Textile Mills; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Primary Metals; Fabricated Metal Products; Chemical Products; and Food, Beverage & Tobacco Products.
Customers’ inventories:
The ISM Customers’ Inventories Index registered 35 percent in December, which is slightly lower than in November when the index registered 37 percent. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the ninth consecutive month the Customers’ Inventories Index has been below 50 percent.
Furniture & Related Products is the only industry reporting higher customers’ inventories during December. The 13 industries that reported lower customers’ inventories during December — listed in order — are: Wood Products; Machinery; Nonmetallic Mineral Products; Plastics & Rubber Products; Transportation Equipment; Primary Metals; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products.
So we have a situation where inventories are not being rebuilt, but employment is up. Is this setting the stage for explosive growth in inventories? This would be a rather large boost to GDP. A negative interpretation is that future delays in the inventory rebound could mean a reversal in some of these jobs. I’m not sure I actually buy the negative interpretation, though. New hiring usually lags production improvements.
As you might expect, the market rallied on the better-than-expected news. Futures were up overnight, so I’m not sure I’d give complete credit to this report (China’s reporting extreme growth as well, so a bit of optimism for a global recovery seems to be spreading).
