Monday, November 2, 2009

ISM Manufacturing, Employment Indexes' Blowout suggest Job Growth!

- by New Deal democrat

The October ISM Manufacturing Index report is out, and it's a blowout. This is as good as it gets, there is definitely a V shaped recovery in manufacturing underway.

The overall index grew to 55.6 from last month's 52.6. (In this report, numbers over 50 represent expansion; numbers under 50 indicate contraction). This is the highest reading since April 2006.

New orders continued to grow, at 58.5, but at a slower pace than last month's 60.8. Production grew at 63.3 vs. September's 55.7. Inventories, at 46.9, are still contracting (a good sign). Supplier deliveries slowed from 58.0 to 56.9 (also good).

Perhaps most importantly of all, for the first time in ages, employment actually grew, at 53.1 vs. last month's 46.2. Additionally, 20% of employers reported plans to hire workers, and 64% who planned on stable workforces, for a total of 84, vs. 15% who planned layoffs, for a net +4 in the index.

At no point during the 1992-3 and 2002-3 "jobless recoveries" did the ISM manufacturing index ever rise to 54 or above. A number above 54 has always meant job growth in the overall economy. Likewise, an employment subindex reading of +4, and hiring plus stable reading of 75 or higher have always meant actual job growth in the economy.

In short, if October 2009 is like all prior post WW2 recoveries, the ISM readings would mean actual job growth in Friday's nonfarm payrolls report.

Because unlike prior recessions, over half of all job losses during the "Great Recession" were in services, however, we still need to see what the ISM service index shows on Wednesday before we can dare to hope that Friday's October jobs number might actually print positive.