Manufacturing Data Now Trending Toward Recovery

The Institute for Supply Management (ISM) released its manufacturing report on business Monday and there are now bright spots for two months in a row. You'll remember that the report measures, indexes, and correlates manufacturing activities with other measurement readings from the government and elsewhere.

Although the manufacturing sector report still indicated recessionary trends, the decline was slower than experienced in both December and January. The overall PMI index was up for the second month in a row, pointing to a much slower annualized GDP decline this quarter (Q1) than reported for Q4. The ISM measurements shows that the annualized declining rate to be at 1.7% (That’s 0.425% on a quarterly basis)

The Production Index was up again, increasing by 4.2 percentage points from January's reading (which was up 5.8% from December's)

The Backlog of Orders Index was also higher for the second month in a row.

According to the ISM, a PMI reading above 50 percent indicates that the manufacturing economy is generally expanding. A reading below 50 percent indicates that it is generally declining. A PMI in excess of 41.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.2 percent, it is generally declining. The distance from 50 percent or 41.2 percent is indicative of the strength of the expansion or decline.

Since we now have 3 data points we can begin to plot the upward linear trend line. Have a look at this chart. You'll note the date when our trend line reaches 41... and then 50.


The February ISM report gives us further evidence that a halt to economic contraction and return to growth by summer is quite possible.

(Thanks to all of you that shared good news yesterday with your friends and family via forwarding emails, posting to facebook, and other social networks via the share button. We actually got noticed by NPR.org and then Publicradio.org later in the day. Keep it up! Good news is building.)