It is always important when analyzing data to consider the relevance and importance of such numbers. So, before looking at the numbers from the lastest ISM reports, let us look at what Briefing.com states about the ISM manufacturing reports at Economic Releases: ISM Index. Under the title “Big Picture” it states the following:
This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.
Obviously any report can be overrated if interpreted in the wrong way. One way this report seems to be over used and misinterpreted is by relative changes in the index instead of considering the “breakevens” in practice. For example if the headline ISM index drops by 6 points it is significantly more important if it drops from above 50 to below 50 than if the index drops from the 60s to 50s range. The first signifying a reversal of growth and the second a slowing of the growth rate which might actually be good. That is, instead of an overheated economy with growing number of bottlenecks it may signify a stable growth trajectory.
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The Institute of Supply Management (ISM) has again graced us with another two reports on the Manufacturing and Non-Manufacturing ISM Report On Business®. In this and other posts on the ISM, we wish to delve deeper into the raw numbers and get a better degree of understanding of the underlying currents in the macro-economy. Along the way let us also look at other voices and opinions of the macro-view.
Headline Numbers of ISM Report On Business®.
The PMI index {manufacturing index} was reported as 56.2% and NMI (non-manufacturing index/composite index) was reported as 53.8%. Both numbers missed Market Watch’s Economic Calendar consensus numbers with ISM Manufacturing consensus at 59% and Non-Manufacturing at 55.3%. Econoday reports ISM Mfg Index as 59 consensus and the range as 57.6 to 59.7 and ISM Non-Mfg Index as 55 consensus and the range as 53.5 to 56 which indicates that only non-manufacturing fell within the range of consensus.
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This post focuses on the issues that the European Union is facing currently. Many of these problems have come to the surface with the mounting fiscal crisis in Greece and more broadly the PIIGS. PIIGS stand for the countries of Portugal, Italy, Ireland, Greece and Spain. The Economist magazine provides some basic facts about each countries debt and what steps have been taken to address the issues at FACTBOX-Eurozone’s embattled fringe PIIGS economies which includes a link to the following chart.
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In my last blog post, I quoted a section of Econoday stating that the ISM report was a sign of a V recovery. Mark Perry of Cape Diem shows other V-Signs of Economic Recovery graphically. But we still have the housing market to deal with, and some believe that a recovery is not possible without housing at least being on stable ground. Although as stated before I do not expect the construction industry to be a growth sector as noted in the Calculated Risk blog, Construction Spending Declines in December.
One of the factors that could in fact determine this outcome between a W or V recovery has to do with some moral questions. In the New York Times article No Help in Sight, More Homeowners Walk Away David Steitfeld quotes homeonwner Benjamin Koellmann:
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The positive portent of the first day of the trading year did not hold through for the DOW as the index dropped nearly 3.5 percentage points in January. Let us just assume that Mark Hulbert is correct that it means little. Returning to one of my favorite subjects, Fox Business provides a good analysis of the January 2010 Manufacturing ISM Report On Business® at the article entitled Manufacturing Posted Another Strong Month in January. Let me quote some of the more important positive portions.
The Institute for Supply Management said Monday that its closely watched PMI rose to 58.4 from 54.9 in December, hitting its highest point since the 58.5 touched in August 2004.
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In my last post I was rhapsodic about the “undiscovered country” — or the future some people call it. Lately, I have had a chance to review some of my saved bookmarks and ran across a December 9th article by Rex Nutting on MarketWatch entitled: Fed expected to lower rates despite raging inflation from MarketWatch. My goal is not to single out this one reporter as being an inflation “nutter” but just to remind ourselves what the general mood was at the time.
And most certainly there were inflation nutters as well as stagflation hawks (vultures more like it) who were predicting rising inflation levels. But for the most part these were based just on headline inflation (food and fuels rising faster than normal). When pressed for details, the nutters came around to talking about M3 monetary aggregate. Let me illustrate with a few paragraphs from Nutting’s article: Read more…
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The start of the new year always presents opportunities to reflect on the past year and to look toward the future of what can come about and to explore that “undiscovered country.” Beyond our personal challenges, the question on many investors minds now is what information do we have now to help predict the future events in the markets. The nice bounce on Monday {January 4, 2010} of about 1.5% gain on the Dow Jones Industrial Average had me thinking back to the old adage of “as goes January, so goes the year” and starting off with a bang could not hurt to at least portend positive results for January. The January 4th edition of the Wall Street Journal (C1) showed that when the Dow was up in January the median gain for the year was 10.4 and a 0.3% gain for when January markets were down for years 1900 to 2009. But Mark Hulbert says “First trading day of year may mean little.” He also expands the reasoning in “January’s questionable predictive powers.”
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Even if the economy is starting to turn around as noted in many of my posts at ‘Macro View of the Markets’, we are facing a major threat of high unemployment rates overhanging economic growth in the long run. The article entitled Initial jobless claims rise 17,000 to 474,000 Total jobless claims, including extended benefits, top 10 million sums up this overhang:
Over the past several months, the claims data have flashed two somewhat contradictory messages: Fewer people are losing their jobs than were six months ago, but once a job is lost, it’s very hard to find another one.
This most definitely indicates a need for a WH Jobs Summit. Although not much usually happens at such summits it strikes me as a bad decision to exclude from invitation both the United States Chamber of Commerce and the National Federation of Independent Business where the event featured 133 guests. A couple of names should be familiar on the invite list including world famous economists like Joseph Stiglitz, Jeffrey Sachs and lastly but not least Paul Krugman. Well sure enough Dr. Krugman provided a glimpse of what he may have been thinking of when going to the summit at The Jobs Imperative.
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Just before bed last night, I was checking my emails for any alerts and found the following short note at Sen. Sanders to place hold on Bernanke nomination. It does not seem likely that Sanders will or can block Bernanke’s nomination as the President already showed support for his nomination and Sanders can only delay the process some. From Sanders own newsroom comes:
‘He’s part of the problem’
A Senate panel this week will hold a hearing on Federal Reserve Chairman Ben Bernanke’s nomination to a second term in charge of the nation’s central bank. The appointment is subject to Senate confirmation. Senator Bernie Sanders said he will vote no. “The middle class of America is collapsing; we have seen incredible greed, recklessness and illegal behavior on Wall Street. This guy…missed the boat on the most significant economic crisis since the Great Depression,” Sanders said Monday on “Morning Meeting” on MSNBC. “We need a whole new direction in the Fed and in our economic policies. A direction that stands up for a change, not for the rich, not for the top 1 percent, not for the giant financial institutions, but for the working class and the middle class of this country. Nobody thinks that Ben Bernanke is that person.”
That is, other than the President and most of the Senate. One of sanders loudest complaints that does seem to hold some water was Bernanke’s handling of the TARP process but so many others were involved in that that it hardly can be blamed solely on the Fed Chairman. Some of his other complaints were the Fed did not “stop the casino-type activities of large financial companies”, demanding bailed-out banks lower interest rates on credit cards, unemployment nearly doubled, and 120 banks failed. While it is most definitely true that a lot of stuff has happened on Ben Bernanke’s time, it is hard to place all the blame on him.
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Paul Krugman has again drawn the attention of other economists and myself to some of his loose thinking. His most recent post at the Op-Ed of the New York Times is entitled Free to Lose. This blog post will be referring back to that article often so best to read it first.
Can Krugman Understand Economics?
Steven E. Landsburg, Professor of Economics at the University of Rochester, gave one of the best backhanded complements ever to Krugman at Krugman to the Rescue.
It’s always impressive to see one person excel in two widely disparate activities: a first-rate mathematician who’s also a world class mountaineer, or a titan of industry who conducts symphony orchestras on the side. But sometimes I think Paul Krugman is out to top them all, by excelling in two activities that are not just disparate but diametrically opposed: economics (for which he was awarded a well-deserved Nobel Prize) and obliviousness to the lessons of economics (for which he’s been awarded a column at the New York Times).
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