Insights & Advice


ISM Rebounds Above 50

January 3, 2007 data as reported by Ned Davis Research

The ISM Manufacturing Index rebounded 1.9 points to 51.4 in December, indicating a resumption of growth.  Economists expected a reading of 50.0.  A 3.4 point gain in new orders and a similar rise in production led the way.  It was the biggest rise in production in over a year.  Among the composite’s components, only inventories contracted at a faster rate.  Customer inventories, however, were too high, remaining above 50 for the third straight month.  ISM characterized manufacturing conditions as "resilient," perhaps a bit strong considering that only half of the industries reported growth.  Historically, a 51.4 reading corresponds to a 3.2% increase in GDP, according to the ISM. 


Backlogs also contracted at a faster rate.  Imports and exports both grew at slower rates.

Prices fell, as the index tumbled 6.0 points to 47.5.  Reflecting that reading, there was a balance between the number of commodities reported up and down in price, while no commodities were said to be in short supply.  Lead times remained in recent ranges.

ADP Estimates Job Loss

According to estimates by ADP, private nonfarm payrolls fell by 40,000 in December, its first negative reading since April 2003.  Adding in the 20,000 average government jobs created over the past 12 months mitigates the loss in total nonfarm payrolls, brining it to -20,000.  Economists are expecting a 118,000 increase in nonfarm payrolls, which, if obtained, would make this the largest underestimate by ADP since May 2004.

Separately, reflecting the typical seasonal decline, online job postings fell in December.  But the y/y growth of total ads rose to 17% from 15%.  New ads remained strong, rising to 24% from a year ago, up from 16% in November.

Credit Conditions Worsen

In another report indicating slower economic growth, the NACM Credit Manager’s Index fell for the 5th straight month, dropping 0.5 points to 54.7, its lowest reading since April 2003.  Of the ten components, seven declined and four are now below 50.  Somewhat surprisingly, services accounted for all of the weakness, dropping 2.5 points to 52.9, its lowest level since Q1 2003.  Conversely, manufacturing rebounded again, gaining 1.5 points to 56.6, propelled by higher sales.

Residential Sector Holds Back Construction Spending

Construction spending slipped 0.2% in November, slightly better than expectations for a 0.4% decline.  Additionally, October’s spending was upwardly revised to -0.3% from -1.0%.  Residential spending slumped for the eighth consecutive month, falling 1.6% in November, countering a 1.2% gain in nonresidential spending on top of October’s upwardly revised 0.5% increase (up from -0.7% as originally reported). Residential spending has fallen 11.5% from its peak, about half way through the typical historical decline.  Public spending remained strong, rising 1.0%.  Both nonresidential and public spending are at record levels.  Overall construction spending is flat with a year ago for the first time since August 2002.  Private spending has fallen 2.7%. Spending on residential construction is off 11% over the past year, the fastest rate of decline since July 1991.

Mortgage Activity Rebounds Modestly

Mortgage activity rebounded modestly last week.  The MBA Purchase Index rose 4.3%, while the Refi Index increased 2.2%, following significant declines in the prior week.  It may take a couple more weeks to get a more accurate view of mortgage applications.

Record Global Semiconductor Sales

Global semiconductor sales rose 3.1% to a record $22.7 billion in November, on a three-month average basis, on continued strength in consumer markets. According to the Consumer Electronics Association, unit sales of flat-panel TVs and digital cameras were ahead of holiday forecasts, resulting in strong revenue growth despite thinner margins.  Moreover, SIA noted inventories are in line with current demand in most major product segments.  Sales are up 11.3% from a year ago.  SIA forecasts 10% growth in sales for 2007.

Weekly Retail Sales Close to Plan

The ICSC Retail Chain Store Sales Index rose 0.3% last week, as consumers began to redeem gift cards.  But due to a calendar shift, which caused December 26 to not be declared a federal holiday compared with a year ago, volume was off by about 20%.  ICSC continues to expect same-store sales growth of 2.5% in December.

Separately, Redbook indicated its sales index fell 1.4% in December, slightly more than the targeted 1.3% decline, with sales for the month on to slightly below plan.  In the latest week, however, sales were relatively strong due to the extra selling day before Christmas compared with last year.

Consumer Comfort Slips a Notch

The ABC News/Washington Post Consumer Comfort Index slipped a point to -3 last week. Two-point declines in both the state of economy and buying climate components, the latter falling to its lowest reading in nearly two months, more than offset a two-point increase in personal finances.