Highest Manufacturing ISM Since April 2011, Employment Surge To April 2012 Levels Puts Taper Back In Play

If last week’s Durable Goods miss was great news for stocks, today’s latest surge in the manufacturing ISM contrary to recent diffusion indices suggestion a whipser print of about 53, may be just what the Chairwoman did not order. With a December print of 57.3, up from last month’s 56.4, and well above expectations of a modest decline to 55.1, this was the highest headline Manufacturing ISM print since April of 2011, just when QE2 was about to end and the economy was said to enter the virtuous cycle.

Looking at the internals, the New Orders print of 63.6, up from 60.6 is what led the headline higher. This was the highest print since April 2011.

What was worse for Taper watchers is that the Employment index jumped from 53.2 to 56.5, the highest since April 2012, and indicative that the November NFP number on Friday, perhaps the most critical data point ahead of the December FOMC announcement, may surprise well to the upside. In that case, the Fed may have no choice but to finally do what it threatened it would do in September and adjust the monthly flow lower by $10-$15 billion especially since as we will show momentarily, the Fed now owns one third of all marketable 10 year equivalents!

From the report:

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI™ registered 57.3 percent, an increase of 0.9 percentage point from October’s reading of 56.4 percent. The PMI™ has increased progressively each month since June, with November’s reading reflecting the highest PMI™ in 2013. The New Orders Index increased in November by 3 percentage points to 63.6 percent, and the Production Index increased by 2 percentage points to 62.8 percent. The Employment Index registered 56.5 percent, an increase of 3.3 percentage points compared to October’s reading of 53.2 percent. This reflects the highest reading since April 2012 when the Employment Index registered 56.8 percent. With 15 of 18 manufacturing industries reporting growth in November relative to October, the positive growth trend characterizing the second half of 2013 is continuing.”

Of the 18 manufacturing industries, 15 are reporting growth in November in the following order: Plastics & Rubber Products; Textile Mills; Furniture & Related Products; Primary Metals; Food, Beverage & Tobacco Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; Computer & Electronic Products; Nonmetallic Mineral Products; and Fabricated Metal Products. The three industries reporting contraction in November are: Apparel, Leather & Allied Products; Wood Products; and Machinery.

The respondents this time, unlike last time when the print once again surged despite pervasive government shutdown pessmism, are almost uniformly optimistic:

“Seasonal demand has not decreased at the typical pace.” (Primary Metals)
“Incoming order rate remaining strong.” (Fabricated Metal Products)
“Outlook for the remainder of the year and into 2014 is trending positive.” (Chemical Products)
“Overall business climate is good. Business is steady.” (Transportation Equipment)
“Sequestration and cutbacks in defense spending continue to impact business.” (Computer & Electronic Products)
“Market continues to be stronger than normal for this time of year.” (Wood Products)
“Getting much busier toward the end of the year.” (Furniture & Related Products)
“Seeing consistent uptick in demand.” (Food, Beverage & Tobacco Products)
“Federal debt, deficit and inefficiency are causing a level of caution and uncertainty.” (Machinery)
“Ordering for 2014 seems to be increasing in comparison to the past six months.” (Miscellaneous Manufacturing)

Finally, breaking down the commodities up and down in price:

Commodities Up in Price