US Manufacturing Surges To 20-Month Highs Despite Employment, Export Orders Drop

Extending October's bounce, Markit's US Manufacturing PMI for November jumped to its highest since March 2015 with "signs of buoyant business conditions in the US manufacturing sector." ISM Manufacturing also rose to its highest since Feb 2015 and while overall orders rose, we note that the USD strength may be evident as export orders dropped and employment slowed.

Both Surveys surge…

ISM Breakdown hints at some issues…

  • PMI rose to 53.2 vs 51.9 last month
  • New orders rose to 53 vs 52.1
  • Employment fell to 52.3 vs 52.9
  • Supplier deliveries rose to 55.7 vs 52.2
  • Inventories rose to 49.0 vs 47.5
  • Customer inventories fell to 49.0 vs 49.5
  • Prices paid unchanged at 54.5
  • Backlog of orders rose to 49.0 vs 45.5
  • New export orders fell to 52.0 vs 52.5
  • Imports fell to 50.5 vs 52.0

Export orders slipped (and we suspect have further to fall)…

 

But New Orders remain uninspiring…

 

Despite respondents that were uniformly exuberant:

"Raw materials have been rather flat. Ramping up for year-end and reducing inventory is main supply chain goal at this time." (Chemical Products)

 

"Strong manufacturing numbers in anticipation of strong year-end bookings." (Computer & Electronic Products)

 

"Business is still steady. We are foregoing our shutdown over Christmas break due to an increase in customer orders." (Plastics & Rubber Products)

 

"Heading into 2017, our business levels look pretty consistent compared to 2016." (Primary Metals)

 

"Sector remains strong, orders and forecasts are consistent and demand outlook is positive." (Food, Beverage & Tobacco Products)

 

"New spec buildings going up in our area. Local companies adding additional production space which equates to higher employment." (Machinery)

 

"Business conditions are good. Labor market is tightening such that it is difficult to staff to completely fulfill production demand." (Miscellaneous Manufacturing)

 

"We are seeing an upswing in customer Requests for Quotations this month; this is a positive sign for our business." (Textile Mills)

 

"Continued strong seasonal demand for product." (Nonmetallic Mineral Products)

 

"2017 is looking to be a very busy year." (Fabricated Metal Products)

 

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The final PMI numbers have come in even stronger than the preliminary flash reading, adding to signs of buoyant business conditions in the US manufacturing sector.

 

“Both production and order books are growing at impressive rates, fuelled predominantly by rising domestic demand for goods from both consumers and businesses. Companies are also rebuilding stock levels, suggesting the recent inventory drag is easing.

 

“The stronger dollar is hurting exporters, but the flip-side of the exchange rate appreciation is lower import costs, which have in turn helped to ameliorate the impact of rising global commodity prices compared to other countries.

 

“However, although employment rose, the survey found ongoing caution in respect to hiring new staff, linked in turn to uncertainty about the outlook and worries about rising costs.”

Not wanting to pour too much cold water on this but as we previously noted, some pretty good economic reports have energized various parts of the financial markets lately. Consumer spending is up, GDP is exceeding expectations and even factory orders, that perennial downer, popped this morning.

In response the dollar is soaring and interest rates are at breaking out of their multi-decade down-channel. The economy is clearly recovering, implying a return to normality. Right?

Nah, it’s just the usual election year illusion.

When the presidency is at stake the party in power always pumps up spending in an attempt to put people back to work and create the impression of a well-run country whose leaders deserve more time in the spotlight. After the election, spending returns to trend and the resulting bad news gets buried in “political honeymoon” media coverage.


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