A Rosy Picture for Near-Term Manufacturing

ISM reports 52.7% increase in Purchasing Managers' Index

Manufacturing continued its growth in November as the PMI registered 52.7%, an increase of 1.9 percentage points when compared to October's reading of 50.8%, the Institute for Supply Management reported on Dec. 1.

"The aggressive gain in November activity returns the index to a normal position that is slightly above its 20-year average, " said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). "A very strong improvement in new orders and production paints a rosy picture for near-term manufacturing activity. In addition, strong gains in motor vehicle production, capital equipment production, and oil field goods continue to drive moderate industrial growth.

"The fact that manufacturing is growing faster than the general economy, though, is unsurprising since the industrial sector is still catching up," he added. "Manufacturing production has recovered only a bit over one-half of its loss from the 2008-2009 recession, in contrast to full recovery in GDP for the economy at large in the third quarter of 2011."

ISM explained that a PMI in excess of 42.5%, over a period of time, "generally indicates an expansion of the overall economy." Therefore, the PMI indicates growth for the 30th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 28th consecutive month.

"The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (55.4%) corresponds to a 4.5% increase in real gross domestic product (GDP)," said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "In addition, if the PMI for November (52.7%) is annualized, it corresponds to a 3.6% increase in real GDP annually."

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