Tuesday, September 1, 2009

ISM index points to V-shaped recovery


I've been using this chart for the past 10-15 years, and it never ceases to amaze me how well the ISM manufacturing index tracks the growth of GDP. We've had a strong, V-shaped recovery in the ISM index, as this chart shows, and there is every reason now to expect that GDP growth in the current quarter will be 3-4%. The inventory cycle is now at work, as depleted inventories were met with firming demand. This, coupled with improving confidence, should help keep the economy growing for quite some time.

Manufacturing is turning up all over the globe, with news last night that China's manufacturing index also registered strong gains in August. All of this validates the message of rising commodity prices. I've always paid very close attention to real-time prices, since they can provide signals way in advance of the more traditional economic statistics and surveys.

4 comments:

狂猪 said...

Global manufacturing activity was generally stronger in August.

http://blogs.wsj.com/economics/2009/09/01/world-wide-factory-activity-by-country/

STS said...

Would you include unemployment in this "V shaped" recovery? Ie. do you expect employment to rally as quickly and decisively as the ISM numbers?

Scott Grannis said...

Employment is a very lagging indicator. But I do note that job losses have declined meaningfully, and that has to happen in any recovery before we can expect job gains. The ADP number today looks very V-shaped, though of course it is still showing job losses. I've also cautioned that even with a V-shaped recovery, the strength of the recovery is not going to be enough to result in significant job gains. The unemployment rate is going to come down slowly.

Scott Grannis said...

Employment is a very lagging indicator. But I do note that job losses have declined meaningfully, and that has to happen in any recovery before we can expect job gains. The ADP number today looks very V-shaped, though of course it is still showing job losses. I've also cautioned that even with a V-shaped recovery, the strength of the recovery is not going to be enough to result in significant job gains. The unemployment rate is going to come down slowly.