Implications: Manufacturing activity surged in October, easily beating consensus expectations. Growth in manufacturing had been trending lower since hitting a peak back in April, but today's report shows renewed acceleration. The indexes for new orders, production, and employment are all at high levels. According to the Institute for Supply Management, which publishes the report, an overall index level of 56.9 is consistent with real economic growth at a 5% annual rate. On the inflation front, the prices paid index ticked up to 71.0 from an already elevated 70.5 in September. This reading shows that regardless of what the Federal Reserve is saying right now, inflation is likely to become a problem in the year ahead.
In other news this morning, construction increased 0.5% in September. However, including downward revisions to prior months, construction fell 1.2%. The gain in September was due to government projects (schools and mass transit) and home building (improvements, not new homes). Commercial construction fell, largely due to manufacturing plants and hotels.
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