Implications: After stumbling in September, the growth rate at US factories rebounded sharply in October. The ISM Manufacturing index, which measures factory sentiment around the country, easily beat the consensus expected 56.0, returning to a very robust 59.0. In fact, at 59.0, the index came in higher than the forecast from every single economic group that made a projection and tied the level in August, which was the highest since February 2011. The best piece of news this morning was the new orders index increasing to 65.8, which points to continuing increases in manufacturing activity in the year ahead. According to the Institute for Supply Management, an overall index level of 59.0 is consistent with real GDP growth of 5.2% annually. However, the ISM report has tended to over-estimate real GDP growth in the past several years. As a result, we think we're seeing an acceleration in the underlying trend in real GDP growth, but more like 2.5% to 3% rather than 5.2%. On the inflation front, the prices paid index fell to 53.5 in October from 59.5 in September, which is consistent with the gradual rise in inflation we anticipate in the year ahead. In other news this morning, construction declined 0.4% in September (-1.0% including downward revisions for prior months), falling short of the consensus expected gain of 0.7%. The decline in September was primarily due to less street paving by local governments as well as a drop in power plant construction. The largest gain was for single-family home building. Despite the decline in overall construction in October, we expect a rebound in the months ahead.
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Posted on Monday, November 3, 2014 @ 11:34 AM
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