US: ISM manufacturing survey surges above expectations in December - Natixis

The US ISM manufacturing index increased meaningfully in December (+1.5pts to 59.7), above consensus expectations and the rise was primarily driven by the new order component, itself probably jolted by the recent adoption of the tax reform, according to Thomas Julien, Research Analyst at Natixis.

Key Quotes

“The employment component declined slightly but remained well above the expansion threshold (50). Prices paid also soared, in line with the recent increase in oil prices. All in all, today’s report bodes well for short term prospects in the manufacturing sector.”

“ISM manufacturing gained 1.5pts to 59.7 in December, higher than expectations (consensus: 58.2) but closer to ours (59.0). The increase was primarily driven by the new order sub-index who reached its highest level since January 2004. The recent adoption of the tax reform may explain a large chunk of this move along with a temporary boost coming after the weather disruptions. Other components were also on the rise (production, inventories and deliveries) except employment which lost almost 3pts but remained well above the expansion threshold (50).”

“ISM prices paid index (not included in the overall ISM index) gain 3.5pts in December (to 69.0).”

“In short, along with a positive trend in regional surveys yesterday’s report clearly indicates that activity will keep gaining momentum in the manufacturing sector in the short run. Indeed, most industries reported an improvement in their perception of business activity. However, it is worth noting that many factories are experiencing higher production and labor costs (in the form of higher energy prices and scarcer labor supply).”