Monday, August 3, 2009

More Signs of Strengthening Manufacturing

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The above chart is from the Chicago PMI index released last Friday. Here is the general trend as reported on the website:

Chicago Business Barometer™ Improved

The Chicago Purchasing Managers reported theChicago Business Barometer improved as the rate of decline slowed, with the highest reading since September 2008.

Business Activity:
  • Prices Paid and Order Backlog indexes declined;
  • New Orders index jumped, while Employment rate of decline slowed;
  • Inventories index was the lowest since mid-1949.

The above charts bear this information out. Like all the other charts from the manufacturing sector (see below) it appears we formed a bottom in the earlier part of this year and have been digging out of the hole since then.

The above chart is from the Richmond Federal Reserve's manufacturing survey. Here is an overview of that report:

In July, the seasonally adjusted manufacturing index — our broadest measure of manufacturing activity — jumped to 14 from June's reading of 6. Among the index's components, shipments leaped 14 points to 16, new orders rose eight points to finish at 24, and the jobs index edged up one point to end at −5.

Other indicators also suggested mostly stronger activity. The orders backlogs index eased four points to 4, while the measure for delivery times edged up two points to 2. The capacity utilization index doubled, adding seven points to 14, while our gauges for inventories grew at a considerably slower pace. The finished goods inventory index retreated 14 points to 26, and the raw materials inventory index moved down 10 points to 8.

And today we had a good report from the Institute for Supply Management:

Manufacturing contracted at a slower rate in July as the PMI registered 48.9 percent, which is 4.1 percentage points higher than the 44.8 percent reported in June. This is the 18th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the third consecutive month in the overall economy, and continuing contraction in the manufacturing sector. Ore stated, "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."

Here is the chart:

The bottom line is things are looking better.