ISM Manufacturing Report bullish for US economy

The PMI Index for the January 2011 Manufacturing ISM Report On Business® released this morning increased to 60.8% from 58.5% in December. This was well above consensus estimates, which looked for a dip to 57.9%. With 50 seen as the demarcation between expansion and contraction, the report shows a manufacturing sector well into the expansion phase.

The Institute for Supply Management wrote:

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent. The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector. New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004. Global demand is driving commodity prices higher, particularly for energy, metals and chemicals."

This is the 18th consecutive month of expansion for the manufacturing sector in the United States.

I like the backlog of orders item as a sign of continuing robust numbers. it popped last month and is a very robust 58.0%. New Orders are also at multi-year highs. On the other hand, prices are starting to become a problem. 81.5% on the prices paid metric is extremely high and signals either price pass throughs to consumer prices are imminent or that margins will take a hit.

60.8 is about the highest reading we have seen on the PMI in the last 28 years. Only in late 1983 did we see numbers demonstrably higher than this.  January was a very strong report.