Making Sense of Today's Surprising Manufacturing Data

I know that lately I’ve been really hammering home how important American consumerism is for the economy. And I’m standing by that. But I also want to take a moment to cover another cornerstone for our economy, and that’s manufacturing. The National Association of Manufacturing (NAM) estimates that for every dollar’s worth of manufactured goods made, $1.43 is created in other sectors. It’s also estimated that two-thirds of all research and development is focused on improving manufacturing.

It has been some time since I’ve recommended any big manufacturing plays, and I don’t have any on my watch list, but that doesn’t mean we can ignore this mecric. This morning, the Institute for Supply Management (ISM) has just released its Purchasing Manager’s Index (PMI) for U.S. factory activity and I want to dive into the results.

(As a refresher, the Purchasing Manager’s Index is a key indicator of manufacturing growth; a reading over 50 indicates expansion while a reading below 50 signals contraction.)

Let’s run down the details:

Unfortunately, the November results fell short of expectations. In November, factory activity fell to a reading of 49.5, down from 51.7 in October. This is the softest reading since July 2009, missing the 51.3 consensus estimate. Meanwhile, the ISM’s index for new orders also declined to 50.3, but the current level still signals a growth. As with many of the latest economic reports, economists guess that Superstorm Sandy dampened growth, so it’s too soon to tell whether this is a trend or a blip in the data. Considering the outsized effect manufacturing has on our economy, I’ll be keeping next month’s PMI at the top of my radar.a

And as a reversal from past months, it looks other pockets of the world are doing better in terms of manufacturing (with the exception of Canada):

  • In Canada, the PMI slipped to a reading of 50.4—the worst reading in two years. This is also the fifth consecutive month that manufacturing has slowed.
  • However, Brazil’s PMI grew to 52.2 in November. This represents the fastest pace in a year.
  • In the Eurozone, the PMI rose to 46.8 in November. France reported a higher reading of 44.5 while Ireland’s PMI rose to 52.4, a four-month high. Meanwhile, Germany, Spain and Greece also reported improvements.
  • China’s PMI advanced to 50.6—the highest reading in seven months.
  • India’s PMI jumped from 52.9 to 53.7.

So we’re seeing some new and interesting trends that could offer up some intriguing buying opportunities over the next few months. As for me, I still consider the U.S. to be the “oasis” among the global economic slowdown, but I’ll keep my eyes peeled for any emerging pockets of strength. In the meantime, if you’re interested in near-term profit opportunities in manufacturing, I’d recommend you start with the top-rated Aerospace and Defense companies, the top Industrial Conglomerates or the top Machinery companies.


Louis Navellier

Louis Navellier

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