The February 2011 Manufacturing ISM Report On Business came out today confirming the strong manufacturing reading we got yesterday from the Chicago PMI. The National PMI came in at 61.4%, ahead of consensus expectations for 60.5% and up from 60.8%. These are good numbers. In fact, the numbers you want to see going up like new orders, production and employment are all up.
Moreover, the inventories picture suggests that there is still room for improvement in the numbers. Customer’s final inventories are to low. And manufacturing inventories generally are contracting. The only negative in this report was in prices paid, showing that commodity price inflation is having an effect. This will either show up in price hikes later in the year or in margin contraction in the manufacturing and retail sectors.
I am going to call a top here however. If you look back at the historical data, there have been no readings higher than this in nearly three decades. The last ISM number higher than 61.4% was a monster 69.9% reading from December 1983. So what does that mean going forward. In terms of growth of the manufacturing sector, it means that we are hitting maximum growth. I would expect the manufacturing sector to add less to overall GDP going forward.