The ISM Manufacturing report may have come as a pleasant surprise to investors, who may have been disheartened by the Durable Goods report recently. I had viewed the Durable Goods report as an outlier (link below) as I saw signs of strength elsewhere and I believe manufacturing to be doing relatively well. And indeed, we learn this morning from the Institute for Supply Management that “The PMI registered 54.8 percent, an increase of 1.4 percentage points from March’s reading of 53.4 percent, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March. The Prices Index for raw materials remained at 61 percent in April, the same rate as reported in March. Comments from the panel generally indicate stable to strong demand, with some concerns cited over increasing oil prices and European stability.” Remember that readings above “50” indicate expansion.

The headline of 54.8 was the highest since June of 2011, and came versus expectations of a drop to 53.0 and exceeded even the most optimistic forecast. New orders were strong, at 58,2 up 3.7 points from last month’s 54.5, showing continued growth. Forty-one percent of manufacturers reported more new orders; 11% reported fewer new orders. This reading is the highest since April 2011. Production was also robust, at 61.0, up from 58.3 and the highest since March 2011. Employment advanced 1.2 points to 57.3. April saw 34% of manufacturers with higher employment and 12% with lower payrolls; by contrast, January saw 23% of manufacturers having more employment and 18% with fewer jobs. Exports surged by 5.0 points to 59.0 (and remember that the Eurozone is only about 15% of our exports, and Canada and Mexico are our largest trade partners). There’s still more room for continued growth in the manufacturing new orders, as manufacturers still indicate their customers’ inventories are “too low” which suggests retailers and wholesalers might place more orders with manufacturers in coming months to replenish stocks.

Overall, this is a strong report. However, the downside is that the prices component of 61.0 shows that manufacturers are still contending with higher input costs, similar to February and March readings.

http://realmoneypro.thestreet.com/updates-and-conversations#ism-manufacturin-20120501