ISM Manufacturing Index at 8-Month High

In contrast to the recent contraction seen in major regional manufacturing reports from the East Coast, the broadest measure of manufacturing activity in the U.S. rose to its highest level since May, from a downwardly revised 50.2 in December to 53.1 in January, as reported a short time ago by the Institute for Supply Management (recall that readings above and below 50 indicate expansion and contraction, respectively).

The new orders component jumped from 49.7 to 53.3 and employment rose from 51.9 to 54.0, while inventories surged from 43.0 to 51.0, an apparent rebound from the de-stocking in the fourth quarter as evidenced by the GDP report detailed here the other day. Obviously, the stock market liked this news.

In a separate report on the mood of the American consumer, the Reuters/University of Michigan consumer sentiment index rose from a mid-month reading of 71.3 to 73.8 for the final January reading, up from 72.9 in December. Recent readings are down from the 80+ levels seen in October and November, prior to the debt ceiling debate heating up in Washington, as the most recent report saw the expectations component move up from 62.7 at mid-month to 66.6 at month end.

This report by Lydia Saad at Gallup does an excellent job at explaining how the plunge in consumer confidence as reported by the Conference Board earlier in the week (as noted here) is not really inconsistent with other more frequent polling data that shows a recent improvement in the consumer mood. It turns out that the Conference Board survey was taken early in the month, just as workers were opening their first paycheck of the new year and noticed their take home pay had gone down due to the expiration of the payroll tax holiday.