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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By Phil at Phil’s Stock World 
Forget the GDP.
We’ll get the report on Q2 GDP at 8:30 tomorrow but I’ll be watching the Employment Cost Index to see if we are recovering. I know it seems like ”commie talk” to my Conservative friends, but rising wages and benefits are signs of a healthy economy and you can plot the rise and fall of the stock market very neatly against how well the workers are treated.
It was Henry Ford who first “discovered” that, if you expect American consumers to buy your products, you have to pay American workers enough to afford them. In January of 1914, the Ford Motor Company announced they would pay $5 a day to its workers. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn’t automatically apply to every worker, it more than doubled the average autoworker’s wage. Workers came from all over the nation and all over the world to work for Ford, who had their pick of the best and the brightest, which led to a 60-year legacy of dominance in American Industry. Read more…
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By Phil of Phil’s Stock World
What are 308,367,109 Americans supposed to do?
First of all, despite clamping down on immigration, our population grew by 2.6M people last year. Unfortunately, not only did we not create jobs for those 2.6M new people but we lost about 4M jobs so what are these new people going to do? Not only that, but nobody is talking about the another major job issue: People aren’t retiring! They can’t afford to because the economy is bad – that means there are even less job openings… The pimply faced kid can’t get a job delivering pizza because his grandpa’s doing it.
There are some brilliant pundits who believe cutting retirement benefits will fix our economy. How will that work exactly? Pay old people less money, don’t cover their medical care and what happens? Then they need money. If they need money, they need to work and if they need to work they increase the supply of labor, which reduces wages and leaves all 308,367,109 of us with less money. Oh sorry, not ALL 308,367,109 – just 308,337,109 – the top 30,000 (0.01%) own the business the other 308,337,109 work at and they will be raking it in because labor is roughly 1/3 of the cost of doing business in America and our great and powerful capitalists have already cut their manufacturing costs by shipping all those jobs overseas, where they pay as little as $1 a day for a human life so now, in order to increase their profits (because profits MUST be increased) they have now turned inward to see what they can shave off in America.
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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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By Phil Davis at Phil’s Stock World
Wheeee!
Finally all our very boring sitting around at 75% cash makes us feel smart as the market makes what we hope is that final blow-off bottom to re-test our lows. I already sent out an Alert to Members this morning so a lot of this is old news to them but nothing has changed since 4:30 so here’s a quick reprise – What we are mainly seeing in the futures this morning is 2 major factors that are driving the markets lower:
1) Japan, where too strong Yen (88.6), -0.1% industrial output, -1.7% exports, rising unemployment (just 5.2%) AND lower household spending (-0.7%) numbers sent the Nikkei down 1.25% today to 9,570. If you think about it though, pretty much all of that is a strong Yen issue because it lowers demand for the exports (making them more expensive) and then factories slow down and people get laid off and household spending drops from that PLUS the fact that it’s now cheaper for them to buy imports so they can buy the same stuff at lower prices. Read more…
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Categories: Phil's Stock World Tags: AAPL, Case-Shiller, CAT, FCX, Macro View, OIH, PFE, TBT, TZA, VIX, XLB, XLF, XOM
By Phil Davis at Phil’s Stock World
We’re going to cut those deficits… As soon as we’re done spending more money!
That’s the conclusion of the G20 summit this weekend as the official statement says:
While growth is returning, the recovery is uneven and fragile, unemployment in many countries remains at unacceptable levels and the social impact of the crisis is still widely felt. Strengthening the recovery is key. To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand. At the same time, recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances.
Those countries with serious fiscal challenges need to accelerate the pace of consolidation. This should be combined with efforts to rebalance global demand to help ensure global growth continues on a sustainable path. Further progress is also required on financial repair and reform to increase the transparency and strengthen the balance sheets of our financial institutions, and support credit availability and rapid growth, including in the real economy. We took new steps to build a better regulated and more resilient financial system that serves the needs of our citizens. There is also a pressing need to complete the reforms of the international financial institutions.
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By Phil at Phil’s Stock World
Behold the power of prayer!
We had a wild ride in the futures in the last 16 hours as they were up 1% and now are barely holding flat at 7:30. Our catalyst was Dr. Ben Bernanke who, as we expected, attempted to boost the markets in a scheduled speech where the Fed chairman said he is hopeful the economy will gain traction and not fall back into a “double dip” recession. “My best guess is we will have a continued recovery, but it won’t feel terrific,” Bernanke said.
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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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Testy Tuesday – Gentle Ben vs. Reality