THE BASIS POINT

U.S. Manufacturing Best Since May 2004. Rates Rising On The News (TABLE EXPLAINS WHY).

If this morning’s mortgage bond selloff holds (MBS currently down 47 basis points), rates will rise about .2% today. The Egypt revolution was helping rates in the past couple trading days despite better GDP Friday (+3.2% for 4Q2010) and higher inflation in Chicago-area manufacturing yesterday, but the best manufacturing report since 2004 today put bond investors in a selling mood. Below is a simple table summarizing today’s ISM Manufacturing report, and it’s useful because it shows each category measured. Of particular concern to bond traders is the ongoing trend of price inflation that the table shows.

Manufacturing is growing if the ISM Manufacturing Index is at 50 or better and today it was 60.8. The monthly ISM study reviews 18 manufacturing industries, and 14 are reporting growth in January, in the following order: Petroleum & Coal Products; Primary Metals; Apparel, Leather & Allied Products; Wood Products; Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; Machinery; Paper Products; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The four industries reporting contraction in January are: Textile Mills; Printing & Related Support Activities; Plastics & Rubber Products; and Nonmetallic Mineral Products.