Looking past schism in the ISM

November 1, 2011

U.S. manufacturing activity slowed to a crawl in October, according to the latest figures from the Institute for Supply Management. Still, a measure of new orders picked up steam, suggesting some prospect for an improvement in demand.

Which signal to trust? Rather than put too much weight on one month’s number, better to pick up on the trend. Here, the story is largely unchanged: growth does not appear on the verge of stalling, but nor is it fast enough to help the economy dig out of the unemployment hole caused by the Great Recession.

Paul Dales, senior U.S. economist at Capital Economics, writes:

Economic conditions seem just about strong enough to avoid a recession, but not strong enough to generate any meaningful growth. We expect much of the same next year, with GDP growth slowing from just above 2% this year to around 1.5%.

Eric Green at TD Securities preferred to look on the bright side:

The new orders (index) was marginally higher rising from 49.6 to 52.4. That may not feel like a heroic move, and it’s not, but it is showing orders expanding, and at the fastest rate since April.

As the Federal Reserve ponders its next move on monetary policy, this may just be the sort of reassurance policymakers need to hold steady as they ponder their next move.





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