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Manufacturing a Recovery

Posted by Jerry Bowyer on 7/23/20 9:00 AM

A key statistic just showed that the U.S. manufacturing sector has probably just entered an expansion period. 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:

Manufacturing Pie Chart

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

Topics: Economics

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