The last seven months have seen an impressive improvement in US manufacturing. Almost all components of US manufacturing have been growing strongly and the US ISM has staged an impressive comeback from sub-50 in May last year to 57 in December. However, our growth diffusion index now implies the potential for short-term disappointment.

090114_usmanuf1This message from the chart above is consistent with the implied ISM value derived from regional manufacturing surveys currently at 55.8 relative to the latest ISM print of 57. This would suggest the ISM flat-lining rather than rolling over strongly.

090114_usmanuf3In other words, the recovery is now complete and a further acceleration from here is unlikely.

090114_usmanuf2We note further that the new/order to inventory ratio has now normalised just above its average level.  More upside is possible but the easy gains have now been reaped, especially as the new orders index is currently at a cyclical high.