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US Factories Gear Up, Will Customers Come?

Posted by Joseph Trevisani on Aug 1, 2013 12:22:00 PM

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The American manufacturing sector grew at the fastest rate in over two years as production and new orders scored solid gains and returning employment is expected to bring customers back to the malls.

The manufacturing index from the Institute for Supply Management jumped to 55.4 in July, the strongest reading since June 2011, well ahead of June's 50.9 and analysts' forecasts at 52.0. The index was at 49.0 just three months ago in May and that had been the first monthly contraction since July 2009.

An exceptionally robust production number at 65.0 up 11.6, the best level in over nine years, and a 6.4 point rise in new orders to 58.3 provided strength to the overall index, aided by the gauge for employment which soared to 54.4 from 48.7.  Reading above 50 indicates expansion, those below contraction.  It was the highest employment index since last June.

Retail sales have been trending lower. In June they were 0.4 percent higher on the month, half the forecast and though the yearly increase rose to 5.7 percent in June from 4.4 percent in May, the direction had been steadily lower from the post-recession high of 8.5 percent in July 2011. Retail sales figures are not corrected for inflation.

Personal income gains have also been lagging, coming in at 3.3 percent over the year in June off from 6.5 percent in February 2011.  

Inventories dropped to 47.0 from 50.5 in June as factories drew down on materials stockpiles; order backlogs declined to 45.0 from 46.5 and prices fell to 49.0 from 52.5. Export orders also slipped to 53.5 in July from 54.5. Imports climbed slightly to 57.5 from 56.0.

Manufacturing comprises about 12 percent of U.S. economic activity but is used as a leading indicator for the whole economy because of the longer lead times required for production, purchasing and hiring.

Joseph Trevisani

Chief Market Strategist


Charts: Bloomberg

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