Wednesday, January 3, 2007

Chicago PMI Expands in December

From Bloomberg

Manufacturing in the U.S. unexpectedly expanded and construction spending fell less than forecast, signaling the worst of the economic slowdown is over.

The Institute for Supply Management's manufacturing index rose to 51.4 in December from 49.5 in November, when activity contracted for the first time in more than three years. Spending on construction dropped 0.2 percent in November after a 0.3 percent drop in October that was smaller than originally reported, the Commerce Department said today in Washington.

The figures suggest the economy will extend the five-year economic expansion into 2007, weathering a slump in housing and a factory downturn that weakened growth in the past three quarters. The dollar rallied, stocks extended their advance and bonds pared gains.

Let's go to the report to get the complete picture.

New orders and production increased. This is a good sign. Prices paid decreased, which should help ease a bit of the Fed's inflationary worry. Employment is an area of concern, as it is still registering a contraction. Also, exports are decreasing faster than imports. This will not help the trade deficit if it continues.

Overall, however, this is a good report. Next month will be very important as it will indicate if the drop below 50 was a 1-time situation or not.