ISM shows manufacturing sector close to recovery

Today the July 2009 Manufacturing ISM Report On Business was released and the widely followed PMI Index came in ahead of expectations at 48.9.  Any number below 50 represents contraction, so this figure shows that the manufacturing sector in the US contracted for an 18th consecutive month.  Nevertheless, the improvement since the beginning of the year is marked and given the trend, the sector will likely be above 50 next month or soon thereafter.

ISM 2009-07

Last month I mentioned that new orders were no longer increasing as the reading had slipped below 50.  That was very worrying to me and it makes new orders a number to watch going forward.  There was a brisk uptick in new orders in July that, if sustained, will mean that increased production is not just a result of restocking of inventory but of actual order flow for product.

Now, if you read Calculated Risk’s take on this report, you would get the impression that things are still looking pretty bad in the manufacturing sector.  I have immense respect for the work done at CR , but that type of post reflects a clear bearish bias.  I have a bearish bias as toward the US economy as well, otherwise my blog wouldn’t be named Credit Writedowns.  However, I see the facts as they are presented – and this report was very bullish.

Not only did new orders tick up, but a number of other data points show expansion: production, supplier deliveries and order backlogs, in particular.  You should also note that the ISM data suggests the overall economy is growing for a third month in a row.

Given this data and other recent bullish economic reports, don’t be surprised if Q3 GDP change prints a positive number.  If it does, it is very likely that the recession is all but over right now.  Mind you, I still am talking about a weak Q4 or Q1 2010 recovery and possible double dip.  But, I am aware that it is mostly upside economic risk that is apparent in the US. The data cannot be ignored.  And right now, it is very bullish.

Manufacturing ISM Report On Business – ISM website

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Author: Edward Harrison;
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