Manufacturing Sector Buoyed by Improving Conditions
- The ISM Manufacturing Index for September increased to a strong 60.8 percent.
- August Construction Spending gained 0.5 percent with support from public projects.
The ISM Manufacturing Index for September increased to a strong 60.8 percent, indicating good and improving conditions for the U.S. manufacturing sector. Nine out of 10 sub-indexes were above the break-even 50 mark, and eight out of 10 sub-indexes improved for the month. Employment, production and new orders were all strongly positive. The commodity price sub-index increased by 9.5 percent in September to 71.5 percent, its highest reading since May 2011. All tracked commodities were up in price for the month, including steel, copper and gasoline. Of the 18 reporting industries, 17 said that they grew in September, only furniture makers reported contraction relative to August. Anecdotal comments were positive about conditions. Some comments focused on hurricane effects, which included supply chain disruptions and higher prices for materials. This was a strong report for the manufacturing sector that sets up positive expectations for the fourth quarter. It is also interesting given the many recent comments from Federal Reserve officials, including Janet Yellen, that inflation is currently weaker than they would like, but is expected to increase. Today’s ISM-MF report for September is consistent with that view of increasing inflation.
New construction spending increased by 0.5 percent in August. Residential projects increased by 0.4 percent for the month, boosted by multifamily projects. Private nonresidential construction spending increased by 0.5 percent in August. Public projects increased by 0.7 percent, supported by a 3.5 percent gain in educational projects.
The Trump Administration announced that President Trump and others have met with two possible candidates for the Federal Reserve chairmanship. The term of current chair Janet Yellen will end this February. Jerome Powell was interviewed. He is currently a member of the Board of Governors of the Federal Reserve. Kevin Warsh was also interviewed. He is a past BOG member. In her press conference on September 20, Yellen said at that time that she had not yet had discussions with the Trump Administration about extending her term beyond February 2018.
Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year Treasury bonds is down to 2.33 percent. NYMEX crude oil is down to $50.13/barrel. Natural gas futures are down to $2.89/mmbtu.
For a PDF version of this report click here: September ISM MF Index.
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