Monday, August 03, 2009

ISM Manufacturing report shows strengthening of the economy

The ISM Manufacturing Report On Business for July showed only a modest contraction of the manufacturing sector in July and enough of an improvement to suggest a strengthening of the overall U.S. economy. The overall manufacturing index came in at 48.9, only modestly below the 50.0 breakeven level. This is the best reading since last August. New Orders just went positive. Production was positive for a second consecutive month. Backlog of Orders is now flat rather than contracting. Exports are growing again. The only real negative was that (manufacturing) employment continues to contract, although at a much slower pace.

This one report does not definitively tell us that we are completely out of the woods by any stretch of the imagination, but it is a very green shoot.

The real bottom line here is that this report indicates that the overall economy is growing again:

The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (40.6 percent) corresponds to a 0.2 percent decrease in real gross domestic product (GDP). However, if the PMI for July (48.9 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually.

There is always the risk of a double-dip recession, but for now we are on track for +2.4% annualized GDP growth.

-- Jack Krupansky

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