Market CommentariesManufacturing Activity Surges Ahead In August: September 2, 2014

The Institute for Supply Management reported a bit earlier this morning that manufacturing activity had surged ahead to its best level in almost three and a half years during August. That noted increase, to 59.0, was well above the forecast result of 56.8; was better than July's survey reading of 57.1; and was dramatically improved from the dividing line (of 50.0) between a growing manufacturing base and one that is contracting.

The improvement last month, meanwhile, was broad-based, with the new orders component, for example, rising from 63.4 in July to 66.7; production gaining from 61.2 to 64.5; inventories climbing from 48.5 to 52.0; backlogs going from 49.5 to 52.5; and exports nudging up from 53.0 to 55.0.

Meanwhile, this was the best showing since March of 2011. It would seem that this key sector has recovered fully from the weather-induced January result of 51.3. As to the past year, this was easily the strongest showing during that span, with the July tally of 57.1 having been the second best result in that last 12 months. As for this extended time, the average for that stretch has been 55.5. The range of results has been from January's 51.3 to August's 59.0.

Furthermore, we are generally seeing upbeat assessments, with 17 of the 18 industries surveyed reporting growth in August, led by plastics and rubber products; furniture and related products; fabricated metal products; and apparel, leather, and allied products. The lone industry reporting a contraction in August was textile mills.

As to the respondents in this closely tracked survey, the food, beverage and tobacco industries noted that business is looking good at this point. There also was some positive sentiment from fabricated metal products, but there were complaints of flattish business in transportation equipment.

Overall, then, this was a very strong report and helps to offset to a degree the rather unimposing results issued Friday for personal income and consumer spending. As to other economic news issued this morning, we learned that construction spending had risen nicely in July, gaining a formidable 1.8%, which was somewhat better than expected. Finally, we are due to get the companion report on non-manufacturing activity on Thursday. As to the rest of this quarter, we expect to see aggregate GDP growth on the order of 3.0%-3.5%.