The Institute for Supply Manager (ISM) has reported that its manufacturing index (an indication of American manufacturing activity), measured a growth rate not seen in two and a half years. Growth has accelerated thanks to increased production, more hiring, and a rise in orders. The Index rose from 56.4 in October (already the highest since April 2011) to 57.3 in November. Any measurement above 50 signifies growth.
November was the sixth consecutive month to record a growth in manufacturing activity as U.S. builders increased construction spending in October and federal spending on public projects grew at an accelerated pace. However, spending on house construction fell during the same period. The good news also conflicts with recent factory data, which shows decreased activity in the sector.
“We continue to believe that this indicator is overstating the health of the broader economy,” said Joshua Shapiro, chief U.S. economist at MFR Inc.
Further clouding the picture is the belief that the economy is slowing during Q3 to an annual rate of, at most, 2 percent. This would be a substantial decline from the 2.8 percent annual growth reached during Q2. Third quarter growth has largely been attributed to companies rebuilding stockpiles and the economy is not expected to benefit from such a trend during the current quarter. Furthermore, some respondents to the ISM survey reported that federal spending cuts and continuing budget battles have limited spending on durable goods, such as machinery, in November.