December ISM Jumps Further

The December ISM manufacturing index improved further in the post election optimism. It rose to 54.7 from 53.2 in November and vs 51.9 in October. This is the best level in two years led by a 7.2 pt jump in new orders to above 60. Backlogs though were unchanged at a still below 50 read of 49. Notwithstanding the US dollar jump, export orders improved by 4 pts to 56. Employment was up slightly to 53.1 from 52.3 but that is still the highest level since June 2015. Inventories at both the manufacturing and customer levels remained below 50 which leaves room for building if end demand is actually realized vs right now what is hoped for. The growth optimism also came with rising inflation expectations as prices paid jumped by 11 pts to 65.5, a level last seen in 2011. Of the 18 industries asked, 14 saw rising price pressures, double the level seen in November.

Even though there was a further improvement in the headline two year high print, there was still just 11 of the 18 industries surveyed that saw growth, the same level as in November. Also, six reported a contraction and unchanged with November. With respect to the jump in new orders, 12 industries reported growth vs 9 last month.

Bottom line, today’s figure adds to the positive gains in sentiment indicators post election measuring the direction of change, not the degree. Now we need to see in coming months to what degree this optimism translates into actual performance as 1/3 of industries are still seeing declining orders. The Trump honeymoon is about to end and the details of what will get done and won’t will be revealed with respect to tax and regulatory policy, the areas that so many are so excited about. US Treasury yields are back to the highs of the morning, as is the US dollar, in response to the positive upside and the spike in prices paid. The sustainability of the dollar strength will of course influence the state of export orders and whether the rise in December can last.