The Institute for Supply Management (ISM) said that the purchasing managers’ index (PMI) continued to move higher, up from 56.4 in October to 57.3 in November. This was the fastest pace since April 2011, and it was above consensus estimates. Most importantly, it reflects the improvements that we have seen in the sector over the past few months, with PMI readings showing expanding levels of activity for six consecutive months.
New orders and production increases were both up strongly once again. The index for new orders rose from 60.6 to 63.6. This was the fourth straight month with the sales index exceeding 60.0, indicating an extremely healthy pace of new orders. This increase included higher export sales, with the exports index up from 57.0 to 59.5. Given the jump in new orders over the past few months, production has also risen sharply, up from 60.8 to 62.8 for the month, with the pace now at its highest point since February 2012. With manufactured goods exports only up marginally so far in 2013, the news of improved trade is a definite positive in this report.
On the employment front, net hiring appears to be picking up, even if these gains continue to be somewhat modest. The employment index increased from 53.2 to 56.5, a level not seen in 19 months. We will get another reading of this on Friday, with the release of new jobs numbers.
The sample comments tend to reflect the more-upbeat nature of the underlying data. As one chemical products manufacturer put it, “Outlook for the remainder of the year and into 2014 is trending positive.” Others noted stronger sales, mirroring the increase in demand seen in the numbers above. Yet, these comments also noted some concern for the U.S. fiscal situation and its impact on the business climate. According to one machinery respondent, “Federal debt, deficit and inefficiency are causing a level of caution and uncertainty. Another individual spoke of how sequestration was impacting their business, as well.
Therefore, the ISM data continue to reflect the acceleration in manufacturing activity that we have seen since the beginning of the third quarter, with manufacturers mostly positive in their outlook as we move into 2014. To the extent that there is caution in the marketplace, it is often attributed to the actions of government. We saw that in the recent government shutdown, and with additional budget deadlines at the beginning of next year, there is some worry that policymakers might fail to reach a deal once more.
Nonetheless, the overriding theme in this report is the strong increases in manufacturing orders and production over the past few months. It will be important for policymakers to keep the momentum going by moving on from fiscal tensions and considering pro-growth measures that will allow the sector to flourish moving forward.
Chad Moutray is the chief economist, National Association of Manufacturers.