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Economic Expansion

ISM Manufacturing Report

Just a short post tonight. I caught the cold that has been floating around the bank and am couch bound for the evening coughing and wheezing, and clearly annoying my dog who gives me the stink eye with each sneeze.

As you can see on the graph above, the ISM Manufacturing report shows the strongest manufacturing activity in 27 years (tied with 2004 most recently) happened in February. It surprised the heck out of me, I do have to say.

What we are seeing is somewhat of a renaissance in US manufacturing, where we are producing at the top of the scale over the past 27 years. According to the report, “New orders and production, driven by strength in exports in particular, continue to drive the composite index. New orders are growing significantly faster than inventories, and the Customers’ Inventories Index indicates supply chain inventories will require continuing replenishment.”

All of this with millions fewer employees than in those past peaks we’ve tied. Productivity gains are clear as companies are producing more with fewer people. Obviously this is one of the major contributors to the earnings gains we saw during the recent earnings season.

This clearly has to make the Treasury and the Federal Reserve happy as their plan to devalue the dollar to make exports more attractive to foreign buyers is working. It isn’t translating into a significant increase in employment, but technology-based productivity gains can only go so far. At some point, these companies will need to hire staff in order to push productivity higher.

This bodes well for the stock market, obviously, as earnings growth can continue. It won’t be a straight rode up, clearly, but growing earnings are one major component to rising stock prices. The other is sentiment, and I’d characterize investors as cautiously optimistic – at least as long as the Fed keeps monetary policy easy.

Enough for tonight. At Rotary today, I was having some laughs about some 70’s stuff with my friend Jim Butler, so I thought I’d share one of my favorite videos from 1978. Hope it brings back fond memories of the 70’s for you, too.


Click here for video on YouTube

Mark