A trio of good manufacturing reports came out today: The Philly Fed, Empire State, and PMI Flash. The latter shows record stockpiling.

The Markit Flash U.S. Manufacturing PMI™ shows survey-record stock building.


Key Findings

  • Manufacturing PMI hits 21-month high during December
  • Stocks of inputs accumulated at the fastest pace since the survey began in May 2007
  • Robust rises in output, new orders and jobs

U.S. manufacturers reported a strong end to 2016, with business conditions improving at the fastest pace since March 2015. At 54.2 in December, up fractionally from 54.1 in November, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) continued its recovery from the post-crisis low seen in May (50.7).

Chris Williamson, Markit Chief Business Economist Comments

  1. “US manufacturing is enjoying a strong end to 2016, showing further signs of pulling out of the soft-patch seen earlier in the year and putting the sector on the starting blocks ready for a further upturn as we move into 2017. “The fourth quarter has seen the strongest PMI readings for one-and-a-half years, suggesting the goods-producing sector is growing at an annualised rate of 2-2.5%.”
  2. “A buoyant domestic market, reflecting a combination of rising consumer demand and inventory building, is helping offset export woes caused by the strong dollar.”
  3. “Companies are gearing up for further growth in coming months: employment is rising at the fastest rate for 18 months and purchasing activity has likewise been ramped up in preparation for higher production. Confidence among producers has clearly improved, setting the scene for a good start to 2017.”
  4. “The upturn is being accompanied by rising costs, linked mainly to global commodity prices lifting higher. The combination of solid growth and rising price pressures adds to the likelihood of further Fed action in 2017, with three more quarter point hikes anticipated next year by IHS Markit.”

Belief in three hikes next year is near-universal.

Empire State Optimism Soars


The Federal Reserve Bank of New York Empire State Manufacturing Survey shows look-ahead optimism approaching 5-year high.

Business Activity

Business activity grew modestly in New York State, according to firms responding to the December 2016 Empire State Manufacturing Survey. The headline general business conditions index climbed eight points to 9.0. The new orders index rose to 11.4, and the shipments index was unchanged at 8.5. Labor market conditions remained weak, with manufacturers reporting declines in employment and hours worked. Inventories continued to fall, and delivery times shortened. The prices paid index rose seven points, pointing to a pickup in input price increases, while the prices received index showed only a slight increase in selling prices.

Firms Highly Optimistic About the Future

Indexes for the six-month outlook strengthened, and suggested that respondents were very optimistic about future conditions. The index for future business conditions shot up twenty points to 50.2, its highest level in nearly five years, with 61 percent of respondents expecting conditions to improve in the months ahead. The index for future new orders climbed eighteen points to 46.7, and the index for future shipments increased fourteen points to 40.1. The index for future employment indicated that firms expected to expand employment significantly. The capital expenditures index climbed nine points to 21.7, and the technology spending index rose four points to 12.2.

Philly Fed Optimism


The Philadelphia Fed December 2016 Manufacturing Business Outlook Survey rounds our trio of manufacturing optimism.

Most Current Indicators Show Improvement

The index for current manufacturing activity in the region increased from a reading of 7.6 in November to 21.5 this month. Nearly 34 percent of the firms reported increases in activity this month, compared with 24 percent last month. The general activity index has remained positive for five consecutive months, and the activity index reading was the highest since November 2014 (see Chart 1). The current new orders and shipments indexes remained positive, reflecting continued growth. The shipments index increased 3 points, while the new orders index fell 5 points. Both the delivery times and unfilled orders indexes were positive for the second consecutive month, suggesting longer delivery times and an increase in unfilled orders.

Six-Month Indexes Increase Prominently

The diffusion index for future general activity increased from a reading of 29.3 in November to 52.6 this month. The index is now at its highest reading since January 2015. Nearly 58 percent of the firms now expect increases in activity over the next six months, compared with 36 percent last month. Indexes for future new orders and shipments also showed notable improvement this month, increasing 14 points and 22 points, respectively. In addition, firms marked up their forecasts for employment increases. The future employment diffusion index increased 16 points. Almost 35 percent of the firms expect increases in employment over the next six months, up from 25 percent in November. A notable share of firms (43 percent) indicated that they will increase capital spending over the next six months, and the future capital spending diffusion index increased 15 points.

Philly Fed Prices Paid vs. Prices Received


What can possibly go wrong with this picture?

Mike “Mish” Shedlock