Manufacturing Rebounds While Jobs Abound

"Unemployment rate is low in our county, making it hard to find workers. We are understaffed and running lots of overtime." That's a survey response from a person in the Plastics & Rubber Products industry in the ISM Report on Business (ROB) that we got this past Friday. That quote pretty much sums up the renewed strength in manufacturing and the tightening of the labor market that we are seeing today. Normally after a payroll Friday, I feel compelled to write about the job gains we are seeing and what impact they have on the overall economy. However, I think it's the manufacturing data that deserves the spotlight this time. It's the recent rebound in manufacturing activity that could be the catalyst that drives this economy to a whole new level of performance in 2016. So let's take a look at the data we got this week and its implications going forward.

As I touched on in last week's writing, regional Fed manufacturing surveys had all been showing significant gains. We got an extension of that this week, with a better-than-expected report from the beaten down Dallas Fed which showed solid gains in its production and new orders components. Aside from the Dallas Fed report, we also got encouraging reports from the Milwaukee ISM Manufacturing report and the Chicago PMI. The Milwaukee index went from 55.22 to 57.78 with the production component going from 52.59 all the way to 68.81. The Milwaukee ISM is somewhat of a C-list indicator based on its area of coverage, but it still verifies what we are seeing in the larger and better known regional surveys. For example, the Chicago PMI that we got on Thursday jumped well back into expansionary territory to 53.6 from 47.6. The gain was primarily driven by increases in the employment and new orders components. All these regional reports from the last couple of weeks were like a crescendo to the ISM Report on Business on Friday. Fortunately, this time the music ended with a smooth finish instead of being off-key as the report came in ahead of expectations and back into expansionary territory at 51.8 from 49.5.

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