Manufacturing output surprised the crowd with an upbeat number in today's ISM Manufacturing report for October. This cyclical slice of the US economy expanded at a slightly faster rate last month, according to ISM's index, leaving this benchmark at 56.4--its highest level in 2-1/2 years. That's something of a shock, vis-a-vis the consensus forecast, which warned of a substantial decline for this benchmark to 55.0. That overall prediction from economists contrasts with yesterday's econometric projection on these pages that anticipated a steady reading for today's October's release by way of a slight uptick to 56.3.
This is the second month in a row that The Capital Spectator's average econometric forecast has contradicted the crowd's guesstimate with a generally accurate call that the status quo would hold (see the September preview and the ISM report that followed a day later for details). What's the lesson? A skeptic might say that even a broken watch will be right twice a day (or twice over a two-month period). But the larger message is that it's important to consider what the data implies when considering how future economic reports will stack up. Subjective analytics by dismal scientists have a useful role when looking ahead, but there's also a good case for starting with a relatively objective foundation by letting the data speak for itself. That's hardly flawless, even if the last two projections suggest otherwise, although it's not chopped liver either. But let's leave the finer points of forecasting for another day and consider today's ISM report.
Clearly, the news du jour is encouraging, although it also comes with plenty of caveats. The headline ISM Manufacturing Index inched higher in October to levels last seen in early 2011. It's tempting to take the numbers at face value and declare that all's well in the land of macro. But a closer look at today's report suggests a bit more caution is in order. In particular, the employment component slipped, as the chart below shows. True, it's a mild retreat, although this week's soft numbers on private payrolls for October via ADP also suggest that the economy's forward momentum on the all-important issue of creating jobs is still stuck in low gear.
Nonetheless, it's impressive that today's headline ISM number continues to show resilience in the face of recent obstacles, including the recent government shutdown. Even so, it's easy to find demons lurking in the shadows. But a broad review of the numbers still show minimal signs of imminent danger for the US business cycle and today's ISM data certainly doesn't contradict that big-picture analysis.
The question is what happens next with an economy that's still delivering modest growth and uninspiring news on payrolls? Hold that thought as we await the next big numbers on the economy: the government's updates on personal income and spending for September and the October employment report, both scheduled for release on Nov. 8.