US ISM Manufacturing Index: Boom goes the dynamite - Wells Fargo

According to analysts from Wells Fargo, The ISM Manufacturing Index for December came in at 59.7, the fifth consecutive print of 58 or higher, noted economists from Wells Fargo, a feat last accomplished in 2004. 

Key Quotes: 

“The ISM survey for December came in at a torrid 59.7–the second fastest pace of expansion in six years. New orders came at 69.4; that means that manufacturers are seeing orders expand at the fastest pace in more than 13 years. There are signs that factories are having trouble keeping up. Order backlogs jumped a full point to 56.0 and supplier deliveries are being held up as well. All the activity is giving supplier a degree of pricing power that has been a fleeting thing in this economic cycle. The prices paid component climbed to 69.0 in December.”

“It is more than just domestic developments that are lifting animal spirits. A number of the published industry comments focused on a pick-up in demand from overseas, and indeed, the export orders component jumped to six-month high of 58.5.”

“This is the thin air of the high peaks. It is quite uncommon for the ISM index to remain so firmly in expansion territory for such a long period of time. The only other time in the past 40 years that the ISM came in at 58 or higher for this many consecutive months was a streak that lasted from November 2003 to August 2004.”

“While the ISM may have lost some of its luster as a bellwether for broader growth as the U.S. economy has become less reliant on manufacturing, it is still vital as a harbinger of things to come for manufacturing. In that regard, we note that despite the nearly 14-year high for the new orders component, actual core capital goods are still not growing as fast as they were in 2010 and 2011. We expect some convergence between these measures in the months to come and acknowledge there is now some clear upside risk to our equipment forecast.”