Fed Watch: Manufacturing - Down, But Not Out

Tim Duy:

Manufacturing - Down, But Not Out, by Tim Duy: As usual, the first major release of the month is the ISM manufacturing report. The headline number edged up:

That said, I really can't get terribly excited by this improvement - looks to me that it continues to hover around the 50 mark. Good only in the sense that the bottom hasn't dropped out from under manufacturing, which I didn't expect at this point. Aggregate new orders were also not exciting, flat at 50.3:

New export and import orders, however, both improved:

In neither case, however, would I say the downtrend of recent months has been broken. A similar story holds for the employment subindex:

Altogether, the ISM data continues to suggest that manufacturing hit a slow patch - unsurprising, given global news and the uncertainty surrounding the path of US fiscal policy - but fears of recession remain premature. Indeed, I still believe that absent a more significant fiscal contraction, it is difficult to envision a recession when the housing market and auto sales continue to improve. Along those lines, some of the anecdotal comments from ISM:

"The election is over; unemployment is dropping; consumer confidence is increasing as are home sales prices. We seem to be turning the corner. New car sales are increasing, which affects our customers." (Fabricated Metal Products)

"Business is strengthening." (Furniture & Related Products)

"Prices and orders are staying stronger than normal for December — a pleasant surprise." (Wood Products)

I am not saying the future is all sunny skies - I not thrilled with fiscal austerity in the face of what I believed to be relatively slow growth in the first place - but for now the cyclical dynamics continue to carry the economy generally upward.

Bottom Line: The ISM data continue to point toward slow growth in manufacturing, but fall short of a more ominous story.