ISM Report Shows Accellerating Growth

The US economy experienced its 91st consecutive month of growth according to the Institute for Supply Management (ISM.)  The Manufacturing Index surged to 54.74 as compared to the consensus expectations of 53.8.  The report also indicated that 11 of the 18 manufacturing industries are experiencing growth.  Listed in order, they are:

1. Petroleum and Coal Products
2. Primary Metals
3. Miscellaneous Manufacturing
4. Food, Beverage, and Tobacco Products
5. Apparel, Leather, and Allied Products
6. Paper Products
7. Machinery
8. Electrical Equipment
9. Appliances and Components
10. Computer and Electronic Products
11. Fabricated Metal Products 

The 6 manufacturing industries that reported a decline are:

1. Plastics and Rubber Products
2. Furniture and Related Products
3. Printing and Related Support Activities
4. Textile Mills
5. Nonmetalic Mineral Products
6. Transportation Equipment

The following chart published by the Institute for Supply Management details the status of each area covered by their monthly survey.

December 2016 ISM Report on Business

What is specifically notable is the rate of change listed for prices as well as the rate of change listed for the overall economy.  The ISM's observation that both are growing at a faster will increase the pressure on FOMC to raise interest rates earlier in 2017 than previously anticipated.  Indeed, the Fed Funds Futures are now factoring in the following probabilities that interest rates will be above the current .50% to .75% range:

• 15 March 2017 = 29.5%
• 03 May 2017 = 39.8%
• 14 June 2017 = 74.5%

Given the exceptionally strong report issued today, Thursday's Jobless Claims and Friday's Employment Situation reports will be closely monitored by FOMC.  Traders will need to monitor this as well, since the probability of interest rate hikes will be factored into equity and bond prices well in advance of each Fed meeting.

Also, as we head into the first earnings season of the new year, be aware of those industries that are reporting expansion versus contraction.  This level of growth (or decline) will manifest in both the earnings releases and the forward guidance for impacted companies.  Watch for potential price reactions as the market digests today's in anticipation of those earnings releases. 

Happy Trading.