Manufacturing Shows Life

At last.

The monthly ISM index which is released by the Institute of Supply Management measures the level of business activity as reported by the managers who are responsible for fulfilling orders. In normal times if the level of the index is above 50% then the manufacturing sector is growing – more than half the managers reporting are seeing more activity than the month before.

So today’s reading of 48.9% is very encouraging. This is the highest reading since last September and is well up from the depths of the low point reached last December of 32.9%.

While the index still shows a slight contraction is present that fact that it has been edging up consistently for a few months now supports the notion that industry is headed out of recession. More to the point: today’s result is quite a bit higher than that expected by most analysts.

Taking this data and coupling it with week’s ‘better than expected’ reading for GDP – which fell ‘only’ 1% last quarter – and I think it is reasonable to predict an end to the recession by the end of this year. Whether we emerge in the third quarter, which looks very likely, or the fourth is debatable, but the long slog through the ‘Great Recession’ is nearly over.

What happens next year is now the big question: the key will be generating jobs. Unfortunately nothing suggests a surge in hiring is on the horizon.

Tomorrow we will see the latest data for personal incomes and consumption: they will give us an indication of the strength of the underlying economy and thus allow us to predict the jobs outlook.

For today at least we have something to cheer about.