US: December ISM manufacturing closes out 2017 strong – Nomura

In December, the US ISM manufacturing index rose to 59.7, up 1.5pp from November, above expectations (Nomura: 57.7, Consensus: 58.2) and December’s reading brought the 2017 average to 57.4, the highest annual reading since 2004, explains the research team at Nomura.

Key Quotes

“The stronger-than-expected reading for December is consistent with our view that momentum remains high in the manufacturing sector going into 2018. The new orders index increased 5.4pp to 69.4, the highest reading since the mid-2000s, and contributed a solid 1.1pp increase in the topline index. The supplier deliveries index, down from the recent hurricane-related peak of 64.4, remains elevated at 57.9. Finally, the production index increased 1.9pp to 65.8. These readings point to sustained momentum in the manufacturing sector over the near term as new orders typically lead production.”

“Many industries reported strong or increasing sales at both the domestic and international level as global growth overall remains strong with many respondents expressing optimism about Q1 2018.”

“The employment index declined 2.7pp to 57.0, a still-elevated reading consistent with our forecast of a 20k increase in manufacturing employment in December’s employment report from the BLS (released on Friday). The ISM report indicated that a number of employers were having a hard time hiring new employees, reflecting the tightening labor market.”

“Elsewhere, the index for backlogged orders inched up 1.0pp to 56.0, indicating increasing demand. The new export orders index remained elevated at 58.5 (up 2.5pp from 56.0 in November), consistent with healthy global demand. The prices paid index rose 3.5pp to 69.0, suggesting modestly higher upward pressure on input prices relative to November. Over the near term, we expect the manufacturing sector, and industrialrelated sector overall, to continue to support healthy growth.”