Thursday, April 1, 2010

ISM manufacturing data very strong

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.


alstry said...

Hooooooray for Obama!!!!!

The engineer for the greatest deficit based recovery in History....

Maybe we can amend the law to allow for 8 more years.......

Maybe we are now learing Scott's new nickname could be BIG GOVERNMENT Grannis;)

If we loaned a homeless person $3 trillion dollars, and forced him/her to spend it.....don't you think we would see a V shaped recovery anywhere that person went?

....until the savings ran out of course.

John said...

Sorry, Alstry,

The engineer was Ben Bernanke.

alstry said... be honest....

I think we can honestly say this has been engineered for the past thirty ever increasing rates since we morphed from being a creditor nation to debtor nation.

Interestingly about the exact same time Madoff started his flourishing business....until the suckers ran out.

John said...

Ford (F-nyse) is reporting a yr over yr sales increase of nearly 40%, the highest since feb 1984. I find it interesting that from 1984 to 1987 the market was up every singe year and culminated with the big fall in October 1987. I believe something similar may be building in this cycle.

Brian H said...

Dear Alstry:

"Maybe we are now learing Scott's new nickname could be BIG GOVERNMENT Grannis;)"

Its a testament to Scott's character that he even allows you to post. If you think Scott is a big government fan you need to interrupt your typing long enough to actually read his posts once in a while.

Here's an idea:
Post insults on your own blog and let your legion of fans read them there.

Benjamin Cole said...

Die, recession, die, die, die!

Monetarists do have a question: This recovery appears to be happening despite almost no growth in M2, or what the St. Louis Fed calls "MZM." In fact, MZM is falling. The St. Louis Fed has terrific charts, but they seem to show roughly steady growth in MZM, maybe a little faster leading into the recession, and now falling.

From the monetarist perspective: Why economic growth when money supply is contracting (as measured by MZM)?

IS MZM worth looking at? From what perspective?

John said...


There is another factor that affects economic growth and that is money velocity. The money supply can remain flat but an increase in money velocity can result in economic growth.

Scott may have other reasons why economic growth can occur with no money growth, but velocity is the only one I can think of at the moment.

Hope this helps.