Manufacturing is on a roll. Today’s update of the ISM Manufacturing Report for February shows that “economic activity in the manufacturing sector expanded in February for the 19th consecutive month.” In fact, the latest rise brings the index to the previous high, set in 2004. The question is when, or if, the revival in manufacturing will spill over into the labor market?

One strategist is optimistic. “The employment component [for manufacturing] went up again,” says Dan Greenhaus, chief economic strategist at Miller Tabak, via CNBC. “There’s definitely a relationship between the ISM employment component of the manufacturing index and manufacturing payrolls in Friday’s report.”

Not everyone expects strong job growth from here on out, although there’s no denying manufacturing’s momentum. Dirk van Dijk of Zacks advises that the latest update on the ISM Manufacturing Index “is extremely strong by any historical perspective. In fact, it has been matched or exceeded in only 77 months since the start of 1948, or 10.2% of the time. Almost all of those instances are ancient history.”
The stock market, however, isn’t impressed. As we write this afternoon, the S&P 500 is down by around 0.8%. Maybe that’s because Fed Chairman Ben Bernanke is out dispensing warnings today in testimony to Congress about the threat of rising oil prices for the economy. That includes the potential for higher inflation. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation — an outlook consistent with the projections of both FOMC participants and most private forecasters,” Bernanke noted. He went on to say that

sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored. We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability.

But first things first. Will manufacturing’s rise translate into stronger job growth? “The strength of the ISM index, the drop in jobless claims and survey evidence all suggest we will see an above-consensus increase in February payroll employment,” according to Chris Low, chief economist at FTN Financial, as reported by Reuters.
The first crack at fresh insight arrives in tomorrow’s ADP Employment Report. The consensus forecast: a net gain of 165,000 for nonfarm payrolls for February, down slightly from January 187,000, according to Briefing.com. Not great, but not bad. Let’s call it lukewarm.
It doesn’t look all that different for small businesses. Today’s update on the Intuit Small Business Employment Index shows a gain of 50,000 new jobs last month. “This month’s report is a lot like last month’s,” says Susan Woodward, the economist who worked with Intuit to create the Index, in a press release. “Small businesses are hiring and their people are working more hours, but measures of compensation are pretty flat, showing that the labor market is still soft. While the rise in employment is good news, this rate of increase is still not going to get us back to full employment very fast.”