Factories Hum Louder in November

With inventory levels depleted, manufacturers now have no choice but to keep up with ongoing strong demand

The U.S. economic recovery continues to gather steam, as evidenced by the November report on manufacturing from the Institute for Supply Management, released Dec. 1. The headline index surged to 62.8 from 57.0 in the prior month. The November figure was much higher than even our above-consensus forecast at MMS International, and marks the highest reading since December, 1983.

The robust set of data confirm our view that we are in the midst of sharp acceleration in factory activity, as manufacturers now have no choice but to keep up with ongoing strong demand given depleted inventory levels.

Eighteen of 20 industries surveyed in the ISM release reported growth, and the November reading of 62.8 historically has been consistent with GDP growth at a whopping 7.3%. The report also revealed that persistently pessimistic anecdotal comments over the last few months are finally improving as well.

As for the components, new orders surged to 73.7 from 64.3, production jumped to 68.3 from 62.6. Employment rose to 51.0 from 47.7 -- the first figure above 50 in 38 months. Inventories rose to 50.0 from 44.5. Prices paid rose to 64.0 from 58.5, as strong demand continues to put upward pressure on commodity prices.

Overall, the headline data as well as several components reached the highest levels in a number of years (if not decades). The data suggest the chance for a notable upside surprise for "real sector" factory data, such as employment and industrial production.

From MMS International staff analysts

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