ISM Manufacturing Index has hit bottom

Last month I noted that the ISM Manufacturing index indicated that the manufacturing sector was still contracting, albeit at a slower pace.  The latest data from the month of April show the same phenomenon.  likely, the index has already hit bottom.

Here’s what the Institute for Supply Management says in its release:

  • “International customers are having trouble getting cash for new orders, even though they need/want the equipment.” (Computer & Electronic Products)
  • “Starting to see some signs of increased production and demand from some automotive customers.” (Fabricated Metal Products)
  • “Business conditions continue to be soft, but agriculture-related products are still quite bullish.” (Machinery)
  • “We are optimistic that things will change for the better in 3Q.” (Chemical Products)
  • “Starting to hear of slight upticks in orders from some sectors of our business but not all.” (Electrical Equipment, Appliances & Components)

The chart below, also in the release, should give you a feel for how broad-based the improvement in the sector is.  Note the purging of customer inventories.  It might even suggest that the purge has gone too far.  That is extremely bullish for Q3 GDP, if not Q2.


Now compare this to a chart from December when things were the worst.


My conclusion is that we have hit bottom in manufacturing. Apparently, Goldman’s Jim O’Neill is right.

Manufacturing ISM Report On Business® – ISM

  1. aitrader says

    Sorry to disagree with you Edward but I see the “bottoming” as a lull due to the trillions and trillions of newly minted money dumped into the global economic system over the last 6-8 months. The effects of unemployment in the US and Europe still haven’t been felt and probably won’t affect the figures until mid-Summer.

    Eastern Europe, particularly the Baltic states, are collapsing. The Western European banks are on the hook for most of their mortgages and commercial real estate. Again, we won’t feel the effects until July at the earliest.

    In my view we are in a lull before the storm. By mid-Summer it’s going to feel like an economic Tsunami hit Europe. The US may seem to be in a holding pattern but will be in the same boat by Fall.

    1. Edward Harrison says

      No doubt we have some serious headwinds.

      However, on balance I believe we will get have seen the bottom. As I was saying to Jake at EconomPic Data about the bottoming out in unemployment as well, it IS interesting. You are right that we’ll have to wait and see until mid-summer. By then, the trend will be clear.

      One thing you forgot to add was the huge implosion in CRE both in the States and Europe.

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