ISM Report: Manufacturing Comeback Continues; Real GDP Growth In Q2 2012 Could Be Above 4%

by: Mark J. Perry

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From today's ISM report on U.S. manufacturing, which increased in April to a 10-month high of 54.8% from 53.4% in March, and was well above consensus expectations of 53%:

Economic activity in the manufacturing sector expanded in April for the 33rd consecutive month, and the overall economy grew for the 35th consecutive month.

According to Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee:

The ISM Manufacturing Index (PMI) registered 54.8%, an increase of 1.4 percentage points from March's reading of 53.4%, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March. The Prices Index for raw materials remained at 61 percent in April, the same rate as reported in March. Comments from the panel generally indicate stable to strong demand, with some concerns cited over increasing oil prices and European stability.

The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (53.7%) corresponds to a 3.8% increase in real gross domestic product (GDP). In addition, if the PMI for April (54.8%) is annualized, it corresponds to a 4.1 percent increase in real GDP annually.

The ISM sub-indexes for production (13-month high), exports, new orders, and employment (10-month high) showed strong gains last month, and all four are listed as "growing faster" for April. Likewise, the "overall economy" and "manufacturing sector" are both described by the ISM as "growing faster" for April, suggesting that economic growth will continue and possibly accelerate in the months ahead. The above-expected strength in U.S. manufacturing activity according to today's ISM report provides additional support that America's industrial sector is at the forefront of the economic expansion.