Manufacturing remains healthy

The March ISM manufacturing index was a bit stronger than expected, and as the above chart shows, at this level the index is consistent with overall economic growth of 3-4%. Nothing spectacular about that, of course, but perhaps more important is the fact that there is no sign of any unusual weakness here. I'm hearing a lot of analysts arguing that Q1/12 GDP growth was less than Q4/11, but today's ISM news doesn't support that.

March export orders were the weakest component of the ISM report (54 in March, down from a very strong 59.5 in February), and many point to an emerging recession in Europe and a substantial weakening of the Chinese economy as the likely culprits. That may be the case, but a reading of 54 still suggests improving conditions. And offsetting a less-strong export number, the employment index rose to 56.1; as the above chart shows, that is a pretty strong number from an historical perspective. On balance, the manufacturing sector continues to look healthy, suggesting first quarter growth is likely to be at least as strong as fourth quarter growth.