US: ISM manufacturing registers another upbeat reading in February – Natixis

Thomas Julien, US Economist at Natixis, takes a note that the US ISM manufacturing index offered its sixth consecutive increase in February, once again above expectations as the index gained +1.7pts to reach 57.7.

Key Quotes

“The rise was largely driven by the new orders component (a leading indicator) which now stands at its highest level since 2009. All in all, the manufacturing sector is getting more and more optimistic about the economic outlook which may support activity in the short run.  This report may also encourage Fed officials to move at the March meeting.”  

“ISM manufacturing increased from 56.0 to 57.7 in February, above expectations (consensus: 56.2) but closer to ours (Natixis 57.0). The increase was mostly driven by the new orders component which now stands at its highest level since 2009. The production and inventory components also strengthened while the employment index lost some ground but remained well above the contraction threshold (50).”  

“ISM prices paid index (not included in the overall ISM index) decreased slightly in February (-1.0pt to 68.0) in line with the recent stabilization in oil prices.”

“In short, report surprised on the upside but remains consistent with regional surveys. All in all, manufacturing surveys continue to indicate that activity in the sector is gaining momentum. This increase in optimism should translate into higher activity in the short run. Yet, we remain cautious in our expectations as some of the current momentum might be attributable to expectations of changes in fiscal policy that are far from being clear at the moment. In addition, global growth prospects are still modest and the dollar is strengthening.”

“As for the Fed, such a report may encourage Fed officials to move at the next meeting. A move in March is now more likely and we are waiting for Yellen’s speech on Friday to update our call.”