Tuesday, January 3, 2012

A decent manufacturing report

The December ISM manufacturing report was yet another in a string of recent reports that shows the U.S. economy is slowly improving rather than sliding into another recession. The weakness that surfaced last summer has been at least partially reversed. As the top chart suggests, the current level of the ISM index is consistent with real GDP growth in the fourth quarter of at least 3%, and possibly as high as 4% (I think 3-3.5% is likely).

Even export orders picked up, which is good since this suggests that Europe's financial woes have not seriously affected the health of the global economy.

The ISM report was far from being robust, but it definitely refutes the notion that the U.S. and global economies are struggling. In the context of a market that is still priced to something like a global recession or even depression (i.e., 2-yr Treasury yields of .25% and 10-yr Treasury yields of 2.0%), this is very good news.


Benjamin Cole said...

Glad to see Scott Grannis is back in action.

Query: The "diffusion index" on ISM pieces paid?

What does this mean---below 50 is falling prices? This chart seems to suggest a huge collapse in "prices paid" since mid-2011. Not as bad as the price collapse of the Great Recession, but in that ballpark.

What prices? For labor, commodities, intermediate goods? Rents?

Why are prices collapsing (until recently)?

Bill said...

I'm curious why you link to Zero Hedge since that site seems to be forecasting doom and gloom on a daily basis. It's like reading Roubini's site, but perhaps you think it offers something helpful.

Rob said...

Scott Grannis, what do you think of:


"Aftershock" by Robert A Wiedemer

Doom and gloom

Is he right ?


Scott Grannis said...

I know there's lots of doom and gloom forecasts out there, and Zero Hedge is particularly good at providing coverage of the latest concerns that are zooming around the professional trading community. I want to be sure I'm not overlooking anything, so I make a point of keeping up with the gloomsters. The main theme I've been running with in recent years is that the future is not going to be as bad as the market fears--lots of gloom and doom is already priced into the market. So that makes me an optimist. In the meantime, the market has been moving higher because the reality has not turned out to be as gloomy as the gloomsters have been predicting.

Benjamin Cole said...


A fascinating improved method to measure money supply---and wow has the Fed been tightening?



Rob said...

Thank you.

Anonymous said...

The late-month December surge in withholding taxes not only continued with the latest data point, but outright surged. Wouldn't be surprised at a 200K+ jobs report, though it might not be apparent until the revisions.

mmanagedaccounts said...

Higher debts. Higher unemployment. Prospective Higher Taxes. Higher federal government participation in just about everything. This is misery to me, but it does not have to be.

Our economy dragged through the first three quarters of 2011 at a1.2% real rate and will probably slumber through the 4th quarter with under 2% growth.

The current administration wants us to be happy with this. Is it the best we can expect after a balance sheet recession accompanied by deleveraging? When I look at Europe and its growing austerity programs, my biggest question is where's the economic growth?

That's the same question I am asking about the United States. Where's the growth?

We have a Federal Reserve that is extremely accomodative as is evidenced by the yield curve, and we have corporate earnings at historical levels and income taxes (although too high) are relatively low compared to the past 60 years,worker productivity continues to be high, yet our economy crawls along.

Why don't we have robust growth? Why can't we be 1980s-1990s all over again? Can we?

Anonymous said...

"Why don't we have robust growth? Why can't we be 1980s-1990s all over again? Can we?"

Demographics. James Paulson did a piece on this a couple years ago. It's also why you get anemic growth from Europe and Japan.

Anonymous said...

BTW, Q4 growth is almost certain to be significantly greater than 2%.

Hans said...

Let's see what the January ISM index brings...


Daniel said...

I watched that entire newsmax video with Robert A Wiedemer.

I gotta say I disagree with the whole "stay away from real estate" bit.

Seems like BAD advice to me.

John said...


Unknown is right. Back then, the boomers were growing families, households, and spending lots of dough. Now they are downsizing and retiring.

A second reason is $10/barrel oil is tough to come by these days, not so much back then.

The crack-up of the Soviet Union and rise of China created a lot of economic competition for the West.

Makes one wonder who won the Cold War. I think maybe it was China.

mmanagedaccounts said...

Harry Dent has made a successful career in forecasting based on demographics. It would seem to me there are policies that could overcome an aging population. What are they?

Benjamin Cole said...


Solution to demographic problem: Old guys should marry young gals and have kids.

Bill said...

Some demographers are predicting another consumer boom starting around 2015 when the recent baby boomleters start forming families and spending more. Interestingly, 2015 would be about the time the current secular bear market should end based on historical data.

Anonymous said...

"It would seem to me there are policies that could overcome an aging population. What are they?"

Another round of large-scale immigration would do the trick. Imagine letting in, say, 1 million Chinese and 1 million Indians a year for the next several years, and watch all those foreclosures awaiting buyers getting snapped up pronto.


BTW, yet another withholding tax update. Though we're now into January with all the data, receipts are going through the roof. The 21-day moving average as of yesterday's receipts was over $8 billion. The corresponding day last year it was around $7.6 billion. Plus, you have to add about 1% to this year's number to take into account the tax rebate which started this year. so the difference is even greater.

*However* all of this big increase has only been in the past ~1.5 weeks or so. The previous ~1.5 months it was terribly weak. TrimTabs came out with its December jobs estimate and said only 38K jobs were added. However, I believe they use the same mid-month cutoff the BLS uses, which would definitely bias their number to the low side. I wonder, however, if a lot of payroll managers this year simply waited until the end of the month to deposit their taxes at the Treasury Department for some reason, and a lot of people were hired in the month, but their withholding taxes simply didn't get recorded until later than usual?

So, if Friday's jobs report reflects TrimTabs, we'll get a disappointing number this month, but a good one next month. On the other hand, if my delayed-tax-deposit hypothesis is correct, we'll get a good jobs report on Friday and a lesser one next month, but TrimTabs next month will tell us we got a surge of jobs created. Basically, expect just about anything.

Anonymous said...

Oh yeah, almost forgot - my "delayed-tax-deposit hypothesis" would be consistent with the drop in initial claims we've been getting lately.

Unknown said...
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