Tuesday, October 1, 2013

The Biggest Contrary Data Point Against My Economic Thesis- PMI Remains Strong

The Institute of Supply Management (ISM) once again announced the results of their monthly Purchasing Managers Index (PMI) and once again the results fly in face of my economic thesis. The latest results are shown below.

MANUFACTURING AT A GLANCE
SEPTEMBER 2013


Index
Series
Index
Sep
Series
Index
Aug
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI™ 56.2 55.7 +0.5 Growing Faster 4
New Orders 60.5 63.2 -2.7 Growing Slower 4
Production 62.6 62.4 +0.2 Growing Faster 4
Employment 55.4 53.3 +2.1 Growing Faster 3
Supplier Deliveries 52.6 52.3 +0.3 Slowing Faster 3
Inventories 50.0 47.5 +2.5 Unchanged From Contracting 1
Customers' Inventories 43.0 42.5 +0.5 Too Low Slower 22
Prices 56.5 54.0 +2.5 Increasing Faster 2
Backlog of Orders 49.5 46.5 +3.0 Contracting Slower 5
Exports 52.0 55.5 -3.5 Growing Slower 10
Imports 55.0 58.0 -3.0 Growing Slower 8
             
OVERALL ECONOMY Growing Faster 52
Manufacturing Sector Growing Faster 4

This was undoubtedly a good report. The PMI gained a half point on the month, primarily on higher inventory levels. New orders fell nearly 3 points but remain strong at 60.5. This is while the supply chain stock, as evidenced by the customer inventory index, moved more towards a more normal measure.

The monthly PMI continues to fly in face of my thesis for recessionary and to stall-speed economic conditions. That said, I surmise much of the gains, provided the limited respondent comments, are derived from housing and auto-related activity, which in turn have been artificially boosted by the Fed's QE efforts.  That said, one indicator I have watch for some time is the spread between US and global manufacturing activity. Excluding the US, global manufacturing activity appears to have contracted in September, comparatively to the robust growth stateside. The following chart shows the global PMI measures excluding the equivalent US results versus the US PMI.

That is one wide gap in activity and historically the US results have tended to converge on global manufacturing activity.



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