Business

Manufacturing sector rebounded sharply in January

Posted February 1, 2019 12:22 p.m. EST

— The jobs numbers for January were solid. But it was another report that showed a strong gain in manufacturing activity that ignited a rally on Wall Street Friday.

Stocks rose after the Institute for Supply Management (ISM) said that its key index on manufacturing rose 2.3 percentage points from December. The Dow was up nearly 150 points while the S&P 500 also inched higher.

The Dow and S&P 500 just wrapped up their best January in three decades and both indexes, along with the Nasdaq, are on track to finish the week with gains of more than 1.6%

"ISM really turbocharged the market this morning. It wasn't the jobs report," said Joseph Brusuelas, chief economist with RSM US.

It's a big difference from a month ago. The combination of a weak ISM manufacturing reading and a sales warning from Apple led to a 660-point drop in the Dow on January 3.

"The rebound in the ISM manufacturing index in January provides further reassurance that economic growth has remained solid at the beginning of 2019," said research firm Capital Economics in a report Friday. "It is clear that activity is not falling off a cliff."

Brusuelas added that the big jump in new orders in the ISM index was the most encouraging part of the report.

He said it shows companies are still confident and willing to spend on new equipment and are not just rushing to buy things before possible tariffs on Chinese imports kick in.

"There were concerns that too much manufacturing activity was pulled forward from the start of this year to the end of 2018 due to worries about tariffs. But the new orders numbers imply that we should still see solid manufacturing demand," Brusuelas said.

To be sure, there is still no resolution to the US-China trade dispute. A tariff increase from 10% to 25% that was originally to go into effect on $200 billion's worth of Chinese goods on January 1 has been pushed to March 2.

There are hopes the Trump administration and China will agree to a new deal before then.

But the latest manufacturing data, coupled with the healthy jobs numbers, are a good sign for the US economy.

"Near term worries about a recession are fading," said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management.