Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

A Macro View: ISM Reports Show Excellent Labor Market Trends

Mon, Mar 7, 5:15 PM ET, by Ron Rutherford, Sabrient.com

Even before the national ISM Manufacturing report came out, the regional reports were strong. For example, Calculated Risk says Chicago PMI Strong in February and Cullen Roche noted a Strong Reading for Chicago ISM Report. Also from Calculated Risk comes Dallas Fed: Texas Manufacturing Activity Picks Up where they show the strong correlation between average all Fed surveys and ISM PMI index (manufacturing).

The World-Wide Factory Activity list provided by WSJ shows expansion in most industrial countries and most increasing production at an increasing rate. This fact is borne out by 17 countries expanding faster and only 5 expanding more slowly. Australia jumped from contracting to expanding with a jump of 4.4 points to 51.1%. International comparisons are always wrought with non-comparable data and noise in the data, so while PMI indexes deal mostly with business sentiment, it is not likely these figures can be so precisely ranked from top to bottom. More than likely they should be grouped into segments like ones under 50 indicating contraction, and countries over 60 indicating rapidly expanding sectors. The US was not top overall, but was in the top 6 over 60 in the index.

The manufacturing indexes for the US and UK converged last month, with the UK dipping slightly and the US expanding. David Smith notes the strong showing that signifies a 10% growth in manufacturing. Manufacturing is doing very nicely, and he states, “After years in the doghouse, Britain’s manufacturing sector is doing well, on the back of global economic revival and a competitive pound…” But on another blog post, he sees anemic growth in the services sectors that will produce overall 'flattish' GDP growth over the last 6 months at Service sector bows to manufacturing.

China is marked by anemic growth in the manufacturing sectors, as noted in the earlier link to the WSJ article on factory activity, with a decrease of 0.7 last month to 52.2%. Although Cullen Roche states different PMI indexes for China (February at 51.7, down from 54.5 last month) he still indicates that the manufacturing sector is increasing but at a much slower pace (China Flashing Warning Sign: PMI Shows Sharp Declines). On his link to the article 5 BULLISH AND BEARISH CHARTS FOR 2011 he considers China’s rising inflation as a bearish sign for the world economy.

First, I am not certain that the world is so dependent on China’s growth, especially considering that most of the world was contracting while the Chinese claimed their economy suffered only modestly. Many developing nations have missed the latest opportunities to get on the development escalator, and would jump at the opportunity to take up any slack in manufacturing that China leaves behind. Secondly, if inflation is the main concern, then weak manufacturing should tame that beast. So I’m not sure what his point is, unless he thinks the world is so dependent on China that only a Goldilocks economy (not too hot, not too cold, just right) will prosper the world.

That’s fine about the world, we want to know about the US!

Although there was a minor increase in the index for both headline numbers, it was a surprise to the upside for both Econoday and MarketWatch. Econoday expected slight decreases in the indexes of a 0.4 for ISM Non-Mfg Index to 59% and 0.3 for ISM Mfg Index to 60.5% while WarketWatch expected the same number as last month for non-manufacturing at 59.4% and a slight increase of 0.2 to 61%. The actual numbers reported by the ISM was 59.7% for the Non-Manufacturing ISM Report and 61.4% for the Manufacturing ISM Report . Both numbers easily fell within the consensus range for Econoday with a range stated of 58.7 to 62% for manufacturing and a wide range of 57.8 to 65.1% for non-manufacturing. The strength in both sectors have been noted by Mark Perry at Carpe Diem noting that the ISM Non-Manufacturing Business Activity Index Surges To 7-Year High and to get a higher reading on the ISM manufacturing index you would have to go back to 1983 and meeting the same level as in May 2004.

Beyond the headline that numbers were in the respectable 60sh range, the individual components of the ISM reports also showed considerable strength. Business activity/production increased 2.8 to 66.3% for manufacturing and 2.3 to 66.9% for non-manufacturing. New orders maintained its very acceptable levels in the mid-60s with a small drop of 0.5 for non-manufacturing and a slight increase for manufacturing of 0.2 which resulted in index number of 64.4% and 68% respectively. New export orders increased nicely for non-manufacturing of 3 points to 56.5% and a smaller increase for manufacturing of 0.5 to an outstanding 62.5% which portents continued strength in the economy.

Jobs, Jobs, Jobs
The all important employment indexes with respect to this economic recovery also showed considerable strength with the index raising 2.8 to an outstanding 64.5 in manufacturing. While a smaller increase of 1.1 to an index of 55.6% for non-manufacturing was reported, this signifies the continued upward trend of the biggest driver in the economy for employment. This is a good time to see the index for the employment non-manufacturing index since December 2009 along with its trend line. Since last posted for the December report the slope of the trend line increased 0.1 to about a 0.6 increase per month and the R^2 rose to under 0.73 from just over 0.58. This means that the trend line is increasing and that even with more months the significance of trend is greater. (Click on tables for clearer images.)

Along with the good employment news from the ISMs, last weeks initial unemployment claims dropped significantly and got plenty of economists to note that this might show signs of an improving labor market. Calculated Risk stated it best at Calculated Risk: Weekly Initial Unemployment Claims decline sharply, 4-Week average below 400,000.

There is nothing magical about the 400,000 level, but breaking below 400,000 is a good sign. The sharp drop in weekly claims suggests improvement in the labor market.

Indeed, as I have stated before nothing is magical about one number or another although there may be infliction points. Others statements are: 1. Andrew Samwick hopes it is good news that Initial UI Claims Cross 400,000; 2. The Capital Spectator asks Is The Stalled Decline In Jobless Claims Really Over This Time?; 3. Mark Perry thinks that “labor market is gradually stabilizing” at CARPE DIEM: Jobless Claims Fall to 2-1/2 Year Low.

Same Structural Rigidity and More of It

…Hayek’s contention that ‘the economic problem of society is mainly one of rapid adaptation to changes…’

While at a Macro View of the Markets blog posts talk in terms of structural rigidity, the scholarly understanding is often in terms of flexibility which is just the absence of structural rigidity. This concept of flexibility is defined by Tony Killick in the following quote.

Broadly expressed, we can define a flexible economy as one in which individuals, organizations and institutions efficiently adjust their goals and resources to changing constraints and opportunities.

Given that we can still see structural rigidity in both reports, the price index continues increasing at an even faster rate. Non-manufacturing price index moved up 1.2 to 73.3%, maintaining its strong above 70 mark, and manufacturing increased less at 0.5, but still maintained its astronomical above 80 mark at exactly 82%. Along with high levels of the price indexes, the ratio of firms reporting rising prices is very high to firms reporting lower prices. Non-manufacturing had 4% of firms reporting lower prices while 46% reporting higher prices. Manufacturing as before had an even higher ratio of 66% reporting higher prices and only 2% reporting lower prices.

Last month showed continued number of commodities with rising prices. Manufacturing showed not much change in total number of commodities with prices rising at around 30 but multi-months rose to 21 from 15 last month. Non-manufacturing showed the more dramatic changes of commodity prices with multi-months rising to 19 from 14 and 7 the month before. Also the number of commodities that have rising prices is 41, up from 28 last month and 23 the month before that. Clearly the trend is that more commodities are having prices rise and then multi-months as the secondary effect.

What Respondents are Saying?
Just like the reports showed increasing business activity but growing price pressures, respondents also spelled this out in detail.

Manufacturing:

# “Our plants are working 24/7 to meet production demands.” (Fabricated Metal Products) # “Capital projects moved from inactive to active” and “Award of long-awaited contracts.”

Non-manufacturing:

# “Business environment is generally improving.” (Management of Companies & Support Services)

# “We are seeing strength in our business both from the perspective of new business and expansion with our existing customers.” (Finance & Insurance)

# “Strong demand; capacity crunch all around.” (Transportation & Warehousing) # “Major uptick in business activities.” (Accommodation & Food Services)

But prices of inputs are constraining business growth.

Manufacturing:

# “A continued weak dollar is increasing the cost of components purchased overseas. It is going to force us to increase our selling prices to our customers.” (Transportation Equipment) # “We continue to see significant inflation across nearly every type of chemical raw material we purchase.” (Chemical Products)

Non-manufacturing:

# “Commodities are once again putting significant pressure on prices and capacity.” (Retail Trade)

Conclusion:
Good news is coming out about the labor markets and the ISM reports confirm this trend. The reports continue to show signs of structural rigidity and more broadly in the markets. At some time the Fed will need to start on a contractionary monetary policy or at least to unwind its positions. This seems to be an exceptional time to tackle the deficits although even modest proposals by the Republicans have generated quite a backlash even among right of center institutions {supposedly}. For example John B. Taylor says that Goldman Sachs Wrong About Impact of House Budget Proposal. Where GS claims that “the House proposal would reduce economic growth in the second and third quarters of this year by 1.5 to 2 percent if enacted into law next month.” My question would be what would GS expect if the budget was actually balanced? Something like a contraction of 20-30%?


SDI Glossary: "Commodities" Definition
SDI Glossary: "price" Definition
SDI Glossary: "the Fed" Definition
SDI Glossary: "Finance" Definition
SDI Glossary: "GDP" Definition
SDI Glossary: "Insurance" Definition
SDI Glossary: "Risk" Definition
SDI Glossary: "Support" Definition
This Article's Word Cloud:   China   Claims   Manufacturing   Risk   This   about   before   both   business   continued   economic   economy   employment   even   expanding   from   good   growth   have   increase   increased   increasing   index   indexes   labor   last   manufacturing   month   months   more   number   numbers   only   over   prices   reporting   reports   rigidity   rising   sectors   showed   strength   strong   that   this   trend   which   with   world   would

| More

Sector Detector: Santa tries to "sleigh" the fiscal cliff
Thu, Dec 13, 8:16 AM ET, by Sabrient.com

. ...

Dark Horse Traders' Hedge: It's Been a Long Way Down For Apple
Wed, Dec 12, 6:35 PM ET, by Sabrient.com

. ...

What the Market Wants: Historical Tax Rates Provide Clarity
Mon, Dec 10, 8:15 PM ET, by Sabrient.com

. ...

Sabrient and Gradient Release Earnings Quality Rank (EQR), a New Quantitative Tool
Mon, Dec 10, 11:16 AM ET, by Sabrient.com

. ...

Sector Detector: Tech shows best valuations as budget negotiation continues
Thu, Dec 6, 8:16 AM ET, by Sabrient.com

. ...

Scott Brown to Reveal Sabrient's Top Stocks on BNN
Wed, Dec 5, 2:15 PM ET, by Sabrient.com

. ...

What the Market Wants: Shame on Washington!
Mon, Dec 3, 6:46 PM ET, by Sabrient.com

. ...

ETF Periscope: Big Unemployment Numbers Across the Pond Remains the Big EU News
Mon, Dec 3, 1:46 PM ET, by Sabrient.com

. ...

Sector Detector: Rankings stay neutral while charts take a bullish turn
Thu, Nov 29, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: From Rush to Risk to Worry
Mon, Nov 26, 6:35 PM ET, by Sabrient.com

. ...

ETF Periscope: Britain Adds More Drama to the EU Circus
Mon, Nov 26, 10:56 AM ET, by Sabrient.com

. ...

What the Market Wants: A $64 Trillion Dilemma
Mon, Nov 19, 6:16 PM ET, by Sabrient.com

. ...

ETF Periscope: A Short Week On Wall Street Might Be a Good Week to Go Short
Mon, Nov 19, 5:35 PM ET, by Sabrient.com

. ...

Sector Detector: Jaded public needs a new hero
Wed, Nov 14, 8:16 AM ET, by Sabrient.com

. ...

Sabrient's Equity Valuation and Ranking Now Available on Bloomberg's App Portal
Tue, Nov 13, 11:45 AM ET, by Sabrient.com

. ...

What the Market Wants: The Devil You Know
Mon, Nov 12, 7:35 PM ET, by Sabrient.com

. ...

Dark Horse Traders' Hedge: Ride out the Storm with FCX, Option Review
Mon, Nov 12, 7:16 PM ET, by Sabrient.com

. ...

ETF Periscope: Bad Economic Numbers Mean a Good Time to Short the Eurozone
Mon, Nov 12, 3:35 PM ET, by Sabrient.com

. ...

Sector Detector: Focus returns to corporate earnings and Europe
Thu, Nov 8, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: After Tomorrow, Another Uncertainty Bites The Dust
Mon, Nov 5, 8:35 PM ET, by Sabrient.com

. ...

ETF Periscope: Elections the Flame, Wall Street the Moth
Mon, Nov 5, 1:36 PM ET, by Sabrient.com

. ...

Sector Detector: Stocks attempt to launch a pre-election rally
Fri, Nov 2, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: Frankenstorm Scares the Markets Closed
Wed, Oct 31, 6:36 PM ET, by Sabrient.com

. ...

What the Market Wants: Frankenstorm!
Mon, Oct 29, 7:15 PM ET, by Sabrient.com

. ...

ETF Periscope: With Companies Sitting On Massive Cash, Expect Blisters On Bottom Lines
Mon, Oct 29, 12:55 PM ET, by Sabrient.com

. ...

Sector Detector: Stocks can't overcome weak quarterly reports
Thu, Oct 25, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: Looking for Certainty Amidst Uncertainty
Mon, Oct 22, 7:25 PM ET, by Sabrient.com

. ...

ETF Periscope: Watch Out Below If Earnings Disappoint This Week
Mon, Oct 22, 2:36 PM ET, by Sabrient.com

. ...

Sector Detector: Stocks back in rally mode even without Tech leadership
Thu, Oct 18, 8:15 AM ET, by Sabrient.com

. ...

What the Market Wants: Uncertainty Reigns in the Market
Mon, Oct 15, 6:53 PM ET, by Sabrient.com

. ...

ETF Periscope: Eurozone and Earnings Duke It Out for This Week's Market Mover Title
Mon, Oct 15, 11:16 AM ET, by Sabrient.com

. ...

Sector Detector: Earnings season launches under cloud of low expectations
Thu, Oct 11, 8:16 AM ET, by Sabrient.com

. ...

Jobs, Food Stamps, Conspiracies (Market Shadows' Fun With Numbers)
Tue, Oct 9, 4:56 PM ET, by Sabrient.com

. ...

Glimpse into the Future (Market Shadows' Fun With Numbers)
Tue, Oct 9, 4:45 PM ET, by Sabrient.com

. ...

What the Market Wants: Fasten Your Money Belts
Mon, Oct 8, 8:16 PM ET, by Sabrient.com

. ...

Ride Sally Ride (SLM) in Option Review, Add Cooper Tire (CTB)
Mon, Oct 8, 7:45 PM ET, by Sabrient.com

. ...

ETF Periscope: Ladies and Gentlemen, Start Your Earnings Season
Mon, Oct 8, 10:56 AM ET, by Sabrient.com

. ...

Sector Detector: Bulls keep their powder dry as presidential debates begin
Thu, Oct 4, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: Fly to Safety (and not on American Airlines)
Mon, Oct 1, 7:16 PM ET, by Sabrient.com

. ...

Options Trade on GBX and MIPS
Mon, Oct 1, 12:36 PM ET, by Sabrient.com

. ...

ETF Periscope: Spain Remains a Pain For Wall Street
Mon, Oct 1, 11:15 AM ET, by Sabrient.com

. ...

5 Stocks Billionaires Are Crazy About
Fri, Sep 28, 12:35 PM ET, by Sabrient.com

. ...

Sector Detector: Investors Watch Romney's Hunt for Red October
Thu, Sep 27, 8:15 AM ET, by Sabrient.com

. ...

Broken Mirrors
Tue, Sep 25, 9:45 PM ET, by Sabrient.com

. ...

What the Market Wants: Caution is the Word of the Week
Mon, Sep 24, 7:25 PM ET, by Sabrient.com

. ...

David Brown Quoted in MarketWatch Article
Mon, Sep 24, 1:16 PM ET, by Sabrient.com

. ...

ETF Periscope: Is Wall Street Floating Along On An Equity Bubble?
Mon, Sep 24, 11:16 AM ET, by Sabrient.com

. ...

Sector Detector: Stocks finally break out from 3-month rising channel
Thu, Sep 20, 8:15 AM ET, by Sabrient.com

. ...

What the Market Wants: QE3 can Likely Produce 10% Short-term Gain
Mon, Sep 17, 5:55 PM ET, by Sabrient.com

. ...

ETF Periscope: Bernanke's Open End Bond Purchases May Snag at the Fiscal Cliff
Mon, Sep 17, 11:15 AM ET, by Sabrient.com

. ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

A Macro View: ISM Reports Show Excellent Labor Market Trends | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.