Thursday, April 1, 2010
You couldn't ask for a more positive, stronger set of numbers than those released today by the Institute for Supply Management. Their members collectively reported a huge gain in overall manufacturing conditions (top chart), a number so strong that it suggests 1st quarter GDP growth could come in as high as 6%. 61% of its members reported seeing stronger export orders (second chart), the most since 1989, during the booming export years of 1985-92. In a direct challenge to prevailing concerns over deflation, 75% of its members reported paying higher prices (third chart). The employment index slipped to 55%, but it continues to reflect expansion, and it remains higher than at any time during the 2006-09 period.
If these numbers don't paint a picture of a V-shaped recovery in manufacturing, then I'm at a loss for how to describe it. Plus, numbers like these very likely reflect similar strength in other areas of the economy. We see here a very strong, robust recovery, coupled with a sharp rebound in pricing power. This is NOT your "new normal" economy, not by any stretch.
It is a testament to the persistence and depth of investor skepticism that in spite of the strength of these numbers, and in spite of all the other signs of recovery (e.g., higher commodity prices, tighter credit spreads, declining unemployment claims, a steep yield curve, declining implied volatility, strong corporate profits, the bottoming in real estate, strong global demand, increasing business investment, and the return of liquidity to corporate bond market, to name a few), the stock market is still 25% below its 2007 high, 10-yr Treasury yields are still below 4%, 2-yr Treasury yields are only 1%, and the market expects the Fed to raise the funds rate to a mere 1% in April or May of next year.
Watch out bears, you're about to be run over by a freight train. Hello, Bernanke, wake up and smell the coffee! We don't need zero interest rates any longer.
Posted by Scott Grannis at 9:09 AM