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Macro Pulse highlights recent activity and events expected to affect the U.S. economy over the next 24 months. While the review is of the entire U.S. economy its particular focus is on developments affecting the Forest Products industry. Everyone with a stake in any level of the sector can benefit from
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Monday, December 5, 2016

November 2016 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that the pace of expansion in U.S. manufacturing accelerated during November. The PMI registered 53.2%, an increase of 1.3 percentage points. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Sub-indexes improved on average -- including order backlogs, which shrank more slowly. 
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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- quickened as well. The NMI registered 57.2%, a 2.4 percentage point rise. All sub-indexes remained above the breakpoint. 
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Wood Products and Real Estate contracted; Paper Products, Construction and Ag & Forestry expanded. “We had almost [a] 9% jump month-over-month on active, secured projects in our variable side of business,” wrote one Construction respondent. “We also acquired new customers in [the] past two months.”
Relevant commodities --
* Priced higher: Diesel; gasoline; paper; corrugate; linerboard; corrugated boxes; lumber; and labor (both construction and general)
* Priced lower: Natural gas.
* Prices mixed: None.
* In short supply: Labor (both construction and general).

Consistency between ISM’s and IHS Markit’s surveys was fairly strong; manufacturing PMIs accelerated in both surveys. ISM’s NMI accelerated, while Markit’s services PMI -- although still expanding -- ticked lower.
Commenting on the data, Chris Williamson, Markit’s chief business economist said:
Manufacturing -- “Both production and order books are growing at impressive rates, fueled predominantly by rising domestic demand for goods from both consumers and businesses. Companies are also rebuilding stock levels, suggesting the recent inventory drag is easing.
“The stronger dollar is hurting exporters, but the flip-side of the exchange rate appreciation is lower import costs, which have in turn helped to ameliorate the impact of rising global commodity prices compared to other countries.
“However, although employment rose, the survey found ongoing caution in respect to hiring new staff, linked in turn to uncertainty about the outlook and worries about rising costs.”

Services -- “The U.S. economy is seeing robust growth, with the business surveys pointing to encouragingly solid rates of expansion in both manufacturing and services.
“Looked at together, [Markit's manufacturing and services] PMI surveys point to the pace of economic growth holding steady on October’s 11-month high, indicating that GDP is set to rise by 0.6% (2.5% annualized) in the fourth quarter. Both sectors are benefiting primarily from stronger domestic demand.
“The solid business survey readings not only add to the widely held view that the Fed is near certain to raise interest rates at its December meeting, but also raise the prospect of more aggressive than previously anticipated interest rate hikes in 2017.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

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