Manufacturing A Recovery

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Posted: Jul 14, 2020 9:23 AM
Manufacturing A Recovery

Source: AP Photo/Carlos Osorio

This metric is broad in that is looks at many, many different factors -- from actual production, to orders, to employment trends, and many others. It is also 'high frequency', which means that rather than the data only being released once a year or once a quarter, it's released every month and only lags the time period it covers by a few days. So it's a quick, wide snapshot of things as of just a few days ago.

It's called the ISM Manufacturing Index, and here's the definition from Investopedia:

"What is ISM Manufacturing Index?

“ISM Manufacturing Index, which used to be called Purchasing Manager's Index (PMI), measures manufacturing activity based on a monthly survey, conducted by Institute for Supply Management (ISM), of purchasing managers at more than 300 manufacturing firms.

“KEY TAKEAWAYS

ISM Manufacturing Index, which used to be called PMI, measures manufacturing activity based on a monthly survey, conducted by ISM, of purchasing managers at more than 300 manufacturing firms.

An index of more than 50 indicates expansion of the manufacturing segment of the economy in comparison with the previous month while a reading of 50 indicates no change and a reading below 50 suggests a contraction of the manufacturing sector.”

(Source: Investopedia)

Note that anything above a level of 50 is considered expansionary. It just spiked from 43.1 to 52.6, which is the largest increase in almost 40 years. Let's have no illusions: 52.6 is not exactly a boom (it barely clears the expansionary hurdle set at 50), but in terms of reversal of trend, this is a powerful signal.

Manufacturing is a big slice of overall economic output:

That dovetails nicely with recent reports of big increases in manufacturing employment

Per LinkedIn's most recent employment tracking data:

"Hiring was also up in manufacturing (+47.8% compared to May), consumer goods (+48.1%) and recreation and travel (+157.1%)."

The job isn't done. But the U.S. economy is not just building products, it's beginning to build what looks like the beginnings of a recovery.

Sources:
 U.S. Bureau of Economic Analysis, average annualized global output 2016 – 2019 for the U.S.
 Investopedia
 “Construction work bounds back,” July 2020, LinkedIn