Manufacturing Outlook Improves Somewhat

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Includes: IYJ, VAW
by: Calafia Beach Pundit

The February ISM manufacturing indices were generally stronger than expected and consistent with a decent pickup in economic growth in the current quarter, compared to the dismal growth of last quarter.

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The overall manufacturing index came in at 54.2 vs. an expected 52.5. As the chart above shows, this is consistent with economic growth in the current quarter of 3%-4%, a big jump from the 0.1% growth rate of the fourth quarter. This view is supported by the New Orders index, which has rebounded significantly this year from 50 in December to 57.8 in February.

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The Export Orders index picked up nicely, a welcome sign that the troubles in the eurozone, which has been in recession for the past year, are not a significant drag on the U.S. economy. Globally, conditions outside the eurozone appear to remain healthy.

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The Prices Paid index remains at a level that is consistent with ongoing, mild inflation.

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The Employment Index is mildly positive, but does not point to any meaningful strengthening in manufacturing in the near future.

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According to the ISM indices, the outlook for the U.S. economy remains substantially better than for the eurozone economy. Eurozone manufacturing reflects an ongoing mild recession; the best that can be said is that conditions in the eurozone are not deteriorating further.