Although manufacturing is of diminishing importance to the economy, (it was in deep contraction both in 2015-16 and again in 2022 without any recession), the ISM manufacturing index remains an important indicator with a 75+ year history of accurately describing that sector and forecasting it over the short term. Any number below 50 indicates contraction. The ISM indicates that the number must be 42.5 or less to signal recession. I use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes.As has been suggested by recent improvements in the regional Feds’ indexes, the ISM report for January was the strongest since the second half of 2022. The total index rose 1.7 to 50.9, and the more leading new orders subindex rose 3.0 to 55.1.Including this month, here are the last six months of both the headline (left column) and new orders (right) numbers:AUG 47.2. 44.6SEP 47.2. 46.1OCT 46.5. 47.1NOV 48.4. 50.4DEC 49.2. 52.1JAN 50.9 55.1The current three month average for the total index is 49.5, and for the new orders subindex 52.7.Here is the last three years for the total index looks like:
And here is the same for the new orders index:
As I said above, these are the strongest levels since 2022.The non-manufacturing headline has been very positive in the past few months. So needless to say, the combined indexes strongly suggest continued growth in the months ahead. I guess I need to add, if the economy is left to it own devices. I.e., tariffs and other political interventions could knock this forecast into the proverbial cocked hat.More By This Author:Personal Income And Spending For December: More “Steady As She Goes” But With Late Cycle Characteristics Long Leading Components Of GDP Suggest Continuing If Sluggish Expansion Through 2025 Continuing Jobless Claims Trend Telegraphs Weak But Still Expanding Economy
