Market Insights: Surging growth for U.S. manufacturing

Surging Growth for U.S. Manufacturing

In our Second Quarter Wrap-up commentary, we discussed our fundamentally positive core thesis on the US markets and noted the strength of the NFIB Small Business Optimism Index, which recently hit a new peak for this cycle. In past cycles, this index has been a lengthy leading indicator, peaking a median 41 months prior to a recession. Today, another widely followed economic indicator, the ISM Manufacturing Index, hit a new high (61.3) for this cycle and the highest reading since 2004. Like the NFIB Small Business Optimism Index, analysis shows that since 1990 this index also peaks well before the US economy enters a recession, especially in the last three economic cycles. Over the last ten economic cycles, the ISM has peaked a median 31.5 months in advance of the start of a recession (see chart below). In addition to that, the S&P500 has performed very well after past peaks, advancing a median 35% over the following two years. There have been two economic periods where this index did not provide a leading signal; however, those periods were vastly different than the one we are in today, when it comes to the inflation and interest rate environment.