The ISM Manufacturing index came in at 53.9 up from 52.7 in November and better than the consensus expectation of 53.0. The ISM is a “magic 50 index” where anything over 50 indicates expansion and anything under represents contraction. Thus it indicates that the manufacturing side of the economy was still expanding moderately in December and at a somewhat faster rate than in November.
It is made up of 10 sub indexes that are as interesting as the overall index. Only five of the sub indexes were above the 50 line but seven increased from last month, while two declined and one was unchanged. Four of the sub indexes are particularly significant. The Production index rose 3.3 points to 59.9, a very strong showing. The New Orders index was also strong, up 0.9 points to 57.9. The Employment index also gained 3.3 points to 55.1. The order backlog is the only one of the four below 50 at 48.0, but it was up 3.0 points.
Thus, not only did the ISM rise and beat expectations, but strength was even better when one looks at the details behind the headline number. This was a strong report and the market should like it. However it has not been a great predictor of the overall economy of late. It was pointing to absolutely boom conditions early in 2011, and overall economic growth in 2011 was decidedly sub-par.
