Monday, November 30th, 2009
PMI Data Boosts Market, Manufacturing Sector
3M Company (MMM), General Electric (GE), Baxter International Inc. (BAX), and other manufacturing firms could see a boost after the Institute of Supply Management’s Purchasing Managers Index moved unexpectedly higher to hit 56.1 this month.
Support for the Rally
The manufacturing sector – and the U.S. market as a whole – moved higher after the Institute of Supply Management’s Purchasing Managers Index moved unexpected higher to hit 56.1. The market was expecting a modest drop from last month’s 54.2 to 53.3 while experts projected an even lower reading of 52.5 for the month.
Many experts are concerned that the market’s rapid V-shaped recovery over the past 9-months could begin to slow down. Eventually, such a rapid expansion will require greater GDP growth to justify, but a strong PMI figure often foreshadows such growth. Still, many economists insist that a consumer-led recovery will be necessary in order to generate truly higher numbers.
About the ISM’s PMI
The Purchasing Managers Index – or PMI – is put out by the Institute for Supply Management (ISM) in its monthly ISM Report on Business. The report is a very important sentiment reading, not only for manufacturing, but also the economy as a whole. Investors primarily look for a reading above 50, which implies expansion of the industry.
The report details five primary categories, including: Production level (0.25), new orders from customers (0.30), supplier deliveries (0.15), inventories (0.10) and employment level (0.20). The figures are taken from a survey of more than 400 purchasing managers from around the country, chosen for their geographic and industry diversification levels.
The Takeaway…
- The Institute of Supply Management’s PMI number rose higher-than-expected to a reading of 56.1 this month, signaling that the manufacturing sector continues to expand more quickly than many thought.
- Economists remain concerned that the stock market’s rapid expansion over the past nine months will begin to slow if GDP growth doesn’t improve enough to justify it, but a strong PMI number represents one key precursor.
Written by Simon Monger
