Stocks and the ISM Manufacturing Report

By David Parkinson

If investors needed an excuse for all their enthusiasm to kick off the year, they got it from the Institute for Supply Management (ISM).

The U.S. organization's monthly index of manufacturing activity came in at a better-than-expected 55.9 for December, its highest reading in nearly four years. Any reading above 50 indicates expansion, and it's the fifth straight month that the index has been north of 50.

"Given the fairly good historical performance of this indicator in tracking U.S. economic activity, the big improvement in the headline index is pointing to further pick-up in U.S. GDP," said Millan Mulraine, economics strategist at TD Securities, in a note to clients.

U.S. stocks, which were already up more than 1% in advance of the news, added to those gains in the wake of the report, The Dow Jones industrial average is up 146 points, or 1.4%, at 10,574, a 15-month high.

Many of the details of the ISM report were just as bullish as the headline number. New orders surged to their highest level in five years, and the employment component turned higher, a positive for the still-struggling U.S. labor market.

"The one wrinkle in the report is that fewer industries reported an increase in overall activity, just nine out of 18, down from 12 the prior month and 13 in October," said economist Sal Guatieri of BMO Nesbitt Burns. "Still, the comments, on balance, were somewhat positive, citing a pickup in consumer spending and in automotive production, though credit remained tight."