ISM Manufacturing expands for an 18th consecutive month

The headline ISM Manufacturing index increased to 61.1 in November, an increase of 0.3% from 60.8 in October. This was also marginally ahead of the 61.0 forecasts by consensus.

Here are the headlines from the Institute for Supply Management: 

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The detail is laid out in the table below. Many of the components show that the manufacturing sector is growing strongly, with growth in New Orders and Production.

It is interesting to see that the Prices component has slipped slightly but this remains extremely high at 82.4, so this is still a key signal of inflation remaining high.

One more aspect is that Customer Inventories are extremely low and falling faster. The supply backlog for business remains a key issue that is acting as a drag on growth. 

Manufacturing November 2021

What does this mean?

This is a report which is mildly hawkish for FOMC monetary policy and should be mildly positive for yields and positive for risk appetite.

Looking at the components of the report, there is a lot in there to bolster the positioning of the hawks on the FOMC. Fed Chair Powell said yesterday that the inflation conditions of rate rises had been met. So, with the pick up in the Employment component for the manufacturing sector, this is another step in the direction for conditions to be met on tightening. It will be interesting to see if Friday’s ISM Services also show similar improvement in Employment momentum. 

Initial Market Reaction

Markets were initially a little uncertain but are looking to make marginal risk positive/USD positive moves.

  • US Treasury yields are higher, with the US 10 year yield just over +1 basis point up. 
  • This has weighed EUR/USD slightly lower by -10 pips. 
  • Also Gold is lower by around -$3
  • US equity futures are solidly higher with the S&P 500 futures up by around +20 ticks

S&P 500 futures