Monday, May 3, 2010

ISM manufacturing index very strong

The Institute for Supply Management's April index of manufacturing activity was a bit stronger than expected, but more importantly, it is telling us that the 3.2% growth rate of first quarter GDP was most likely depressed by bad weather. For the past four months, the ISM manufacturing index has been pointing to GDP growth of 5-6%. Thus, we could see a very strong rebound in second quarter GDP growth. That would be consistent with all the other V signs out there, such as commodity prices and export orders, with the latter shown in the next chart:

Furthermore, the employment index in April jumped to 58.5, its highest level since early 2005. And in yet another reminder that deflation risk is no longer a concern, the ISM prices paid index rose to 78, a level it has rarely exceeded in the past. There is a whole lot more life in the economy than what was reflected in last week's Q1 GDP release, and there are budding signs of reflation as well.


brodero said...

The 12 month moving average of the
new orders minus inventories differential is at its highest level in 33 years.

John said...


The ISM definately looks good. However the last time I looked manufacturing was still a small piece of GDP. Not complaining though. All good news is cheerfully accepted.

I am becoming a little concerned about the far east. China has raised bank reserve requirements again in efforts to cool down their property sector. Far east commodity producer stocks BHP and Freeport McMoran C&G are undergoing stiff corrections. The stock markets in China have been underperforming for some time. I've seen it somewhere that 60% of Chinese GDP is in property development and construction - highly cyclical and credit sensitive. They really need our consumer markets to pick up and diversify their economic output. From what I see it is coming though.

I am pleased to know you feel the 3.2% US GDP growth was on the low side and that we will see a pickup in this quarter. Thanks for that comment.

The Greek bailout still looks to me like a bandaid. I am not confident this will work. The market is going to distinguish between the ants and the grasshoppers - in spades. Looks to me like frugal Germany wins...and hard currency Switzerland's banks are void of any toxic Greek bonds.....imagine that. The EU is IMO a failure and it will become more and more apparant as time goes on. This wrecks the euro as a legitimate reserve currency IMO. King dollar reigns.

John said...

Thanks, Brodero,

It looks like manufacturing growth is going to remain strong for awhile. Good useful post.

Benjamin Cole said...


OT, but related: BP now offers a 7 percent yield. While I am not an oil bull, I think there is a case to be made oil won't go back to $40 a barrel and stay there either.

Do you buy BP on the (very) bad news?

John said...


Not me, pal. In fact I sold mine friday. Their liability is absolutely unknowable. This government will hold them accountable for every dollar of losses, possibly including lost opportunity. They face lawsuits for as far as the eye can see. That dividend is NOT a legal obligation and faced with their unlimited upside losses it will be addressed and addressed soon IMO.

To give you an example, I am almost certain the beaches here at Destin will get some oil. It could also reach the beaches of west Florida. The courts may possibly hold them liable for lost revenue to the vacation industry. Also, the fishing industry all along the coast will be halted if it has not been already. Although the prospects are improving that they will stop the oil leak in the next several days I think the damage has been done. They have swallowed this treblehook deep into their gut and they are not getting off for a long, long time.

If you are an investor, just stay away. Just my two cents worth.

Benjamin Cole said...


Understood. Still, this is a company with a $150 bil market cap. and global markets in a commodity that may become scarcer.

If oil goes to even $90 a stays there for several years, BP makes plenty money to pay for this spill.

I am not sure Obama will be any diff from Bsuh on liability issues. Either they are liable or not.

John said...


Buy it then. But be prepared for a LOT of headline risk, lawsuits virtually without end and a lot of volatility. Also, the divvy will be suspect - or at least some of it.

Why not get Exxon or Chevron? The integrity of the principal is more important to me than the dividend. If oil goes up these will perform better because they don't have BP's baggage.

I'm not saying a speculator can't make money in BP. The volatility will attract a lot of players. Its just not me.

You are, of course, correct about the government. ANY government is going to keep their feet to the fire and justifiably so. Sorry about the implication.

BP is not going out of business and at some point when the liability is more defined it may get more interesting to me. I'll let it trade and see where it settles out and perhaps revisit it....just not now. Too many unknowns for this poor country boy.

Benjamin Cole said...

I like buying when people are scared.

Though, I am reminded of an old saying: "If you can keep your head when everyone around you is losing their's....then maybe you don't understand the situation."

Maybe I don't understand the situation.