Industrial Growth | Third Quarter 2014

November 2014 – The industrial sector is beginning to face some cyclical headwinds as market indicators are sending a range of mixed messages with respect to expansion or contraction. Certainly, to the positive, the latest ISM Report reflects strong growth with a composite index for October of 59.0 vs. consensus of 56.0 and a September mark of 56.6. This matches August’s level and is the strongest since February 2011. Conversely, the PMI Manufacturing Index came in at 55.9, below both consensus (56.1) and last month (57.5). Key to this report was (i) new business as monthly growth slowed to its lowest rate since the severe winter weather in Q1, (ii) slow export sales, and (iii) little increase in total backlog orders. Given the mixed readings, the sector, predictably, is experiencing cyclicality in light of the pockets of positive momentum and declining input costs, such as oil, which are offset by rising geopolitical instability, concerns of overbought equity markets reaching new all-time highs, and a search for sustainable drivers of growth.

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