November’s ISM reading of 53.2% was up from 51.9% in October and much higher than the anticipated 52.5%. The important production index rose to 56.0% (highest since January 2015), while the new orders index rose to 53.0%. The employment index was relatively unchanged at 52.3%. Comments from the respondents were significantly better; with some industries starting to talk about shortages of skilled workers and foregoing traditional Christmas shutdowns.
Bottom line: November’s ISM at 53.2% was again solidly in expansion territory following a drop below in August. Sentiment from those surveyed was encouraging, with some quite optimistic about 2017. Nevertheless, the improvement in aggregate manufacturing activity will continue to be slow and grinding, due to the stronger dollar, and still weak global demand, with inventories also being a near-term headwind. The Fed will be pleased with this result, and this gives it no cause to change course for a December 14 rate increase, which is now being priced in with a 100% probability.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.