US manufacturing data look good, even inventories
The April 2010 Manufacturing ISM Report On Business® showed across the board strength in US manufacturing. The index hit 60.5 percent, a 6 year high and well above the 50 percent demarcation line between recession and recovery. The manufacturing sector has been expanding for nine months now.
WHAT RESPONDENTS ARE SAYING …
- "Finances continue to be tight, and we are decreasing safety stock levels to reduce inventory." (Electrical Equipment, Appliances & Components)
- "Business conditions continue to improve. Actual sales exceeded budget for the third straight month." (Food, Beverage & Tobacco Products)
- "Demand from automotive manufacturers has continued to improve month over month." (Fabricated Metal Products)
- "We are finally seeing a turnaround." (Primary Metals)
- "Upward price pressure still evident." (Chemical Products)
What is more encouraging about the manufacturing data is the inventories situation. Neither businesses from the survey nor their customers have yet to ramp up inventories in a big way. This leaves potential upside for the recovery if job and income growth catch up to the already large upsurge in consumption growth.
Apparently, American consumers have enough residual income to buy one million iPads, especially the most expensive 3G version. Who said that consumers were destined to save more? Nevertheless, unless the economy adds a lot more jobs or income growth ramps up, the recovery will fade.
So, my read of the data is that the manufacturing sector is in full recovery mode with room to expand production even more given the relatively low level of inventories. The missing link is personal income and job growth. The government is supporting the economy right now, as consumer income ex. government transfers is flat. If we see job and personal income growth ex. transfers picking up, maybe the cyclical recovery can move into self-sustaining mode.