The U.S. Institute for Supply Management’s index of manufacturing activity for the month of November shot past consensus expectations today, hitting its highest level in 20 years.

The ISM, a gauge of how well the manufacturing sector is doing, beat the consensus by about five points to a reading of 62.8. “It was 20 years ago to the day that this index was ever higher than at present, with today’s reading being the highest since hitting 69.9 in December of 1983,” said Derek Holt, assistant chief economist, for RBC Financial Group. “Any doubts that the U.S. manufacturing recovery is well afoot should now be fully swept aside.

“This is the fifth straight month that this index has put in a reading above the critical 50-threshold which signals expansionary activity,” Holt said in a report.

Every single major subcomponent to the survey contributed to the huge gain over the previous month’s 57.0 measure. New orders and production both improved sharply.

Construction spending also grew faster than consensus expectations in October. Against consensus expectations for a gain of 0.6%, construction spending actually increased by 0.9%. However, all of the gain was due to strong housing markets that drove a 2.2% rise in residential construction expenditures. Private non-residential construction expenditures, however, fell by 2.1% and the drop in business related construction spending was widespread. Construction spending by manufacturers was down by 6.7%, by utilities it dropped by 7.2%, and on commercial buildings it fell by 2.5%. Public construction spending on infrastructure projects grew by 1.2%. The mixture of such spending numbers is likely to change over the course of the next year, as housing markets cool and all drivers of business investment point upward as already witnessed in a number of improving trends.

Holt said perhaps the most encouraging part of the report aside from the headline reading is that the employment subindex “has finally crossed into expansionary mode through a reading of 51.0 that signals expanding manufacturing employment after over three years of sub-50 readings. Markets are likely to be positively surprised by this report, which has posted a 17-point rise since bottoming out in April of this year. The stage is set for a firm hand-off to solid growth going into 2004.

Sherry Cooper, chief economist, at BMO Nesbitt Burns Inc., said the ISM report “testifies to a very wide breadth of upswing in manufacturing and puts to rest any lingering concerns that the economy would slow in Q4 following the end of tax cuts. Details were as strong as the headline and were backed up by better global factory surveys out earlier this morning.”

Cooper noted the last time ISM was this high was in the middle of a growth run when U.S. GDP averaged over 8.5% for a year!

But she said “we will wait for Friday’s payroll and unemployment rate before walking the plank and forecasting a change in direction by the Fed. However, we are already out on the plank.”