Tuesday, February 1, 2011

ISM manufacturing report very strong

The January ISM manufacturing survey indices came in much stronger than expected. This is  almost what one could call a blowout report, since it leaves no doubt that conditions in the manufacturing sector are improving significantly. As the top chart suggests, the overall index is consistent with GDP growth of at least 4-5%, which is what I'm expecting to see as the year unfolds.


The employment index hasn't been this strong since early 1973.


The export orders index has been volatile in the past year, but January was very strong and there is no indication of any deterioration. The New Orders index was also very strong, rising back to levels not seen since the economy surged in the second half of 2003. The Prices Paid Index was also strong, as 81.5% of the respondents reported paying higher prices. This very strongly suggests that deflation is a thing of the past, and it should be ringing alarm bells at the Fed. Nothing about this report fits the Fed's narrative of an economy that desperately needs massive monetary stimulus with no need to worry about any inflationary consequences.
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5 comments:

  1. JohnFebruary 1, 2011 at 8:58 AM

    Very soon lending should be showing signs of real improvement. Businesses, particularly in manufacturing, should be seeing big opportunities and it will bring them to the banks for loans.

    Scott, a couple of questions for you. Roughly how long does a typical economic recovery/expansion last, and how far are we into the current one? I am not interested in precision here, but a frame of reference for where we are and how far we can go. Thanks.

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  2. Scott GrannisFebruary 1, 2011 at 9:06 AM

    There is no rule for how long a business cycle lasts, but since 1981 recessions have come about every 7-10 years (1982, 1990-91, 2001, 2008-9). I think we are still in the very early stages of the current business cycle, with many more years of growth ahead of us.

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  3. BillFebruary 1, 2011 at 9:11 AM

    Scott,

    What do you think of the economist at Davos who predicted another banking crisis in 2015? Is it really possible to predict that far out?

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  4. Scott GrannisFebruary 1, 2011 at 9:30 AM

    I think that predicting a specific type of crisis 4 years out is way beyond the ability of mortals.

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  5. Benjamin ColeFebruary 1, 2011 at 10:08 AM

    My friends, today is one of the greatest days in American commercial history.

    The Dow is surging--surging!--past 12,000.

    I suspect in the popular mind--and even in the minds of "professionals" who are still subject to human emotions--this will mark an important milestone.

    Good times are back, Jack.

    Problems in Egypt are a flimsy barrier through which the financial bull just ripped a huge hole.

    Who doesn't like QE2 now?

    Pour it on Ben Bernanke, pour it on, tip the barrels over, spike the punch, snatch your tie off, and let it rip. Crank up the music, and dance on all fours as naughty as you can.

    I see a global boom for years and years. A rising tide will lift all boats, including banks and troubled governments.

    Stocks, property and even gold will rally--the Chinese will buy gold with their new found wealth. NHK News out of Tokyo ran some clips interviewing Chinese investors. They just love gold, deep in their tradition. They give gold as gifts on Chinese New Years, as tradition.

    There will be rough times again, to be sure. But today, take out the bubbly and enjoy yourselves. The worst is over, and good times are ahead.

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