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Manufacturing Around the Worlds Grows Faster Than Expected

February 1st, 2010 Michael McDonough Comments off

January’s Manufacturing ISM Index rose to 58.4, now coming in above 50 for six consecutive months. The this reading was much better than the Bloomberg consensus forecast of 55.5 with individual estimates from 53.5 to 58.0.

Looking at the ISM’s sub-indices; prices paid rose to 70.0 in January from 61.5 in December; the employment index climbed to 53.3 from 50.2; & the new orders index rose to 65.9 compared to 64.8 a month prior.

Markets are trading higher on the news, especially material companies, as manufacturing surveys around the world showed strong than expected gains.

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Non-Manufacturing ISM Goes Back Above 50, But Barely

January 6th, 2010 Michael McDonough Comments off

The December non-manufacturing ISM came in at 50.1 versus 48.7, a month prior.  The Bloomberg consensus forecast was 50.5 with estimates ranging from 48.0 to 52.1.  The all important employment index finished December at 44.0 versus 41.6 in November.  The prices paid index remained well above 50 coming in at 58.7 from 57.8.  The standalone business index moved into expansionary territory with a reading of 53.7 compared to 49.6, reported last month.  The new orders index, which tends to be a forward looking component fell to 52.1 from 54.5 a month prior–reaching a four month low.  This could add to some weakness in the months ahead.

The non-manufacturing ISM’s employment index’s rise to 44.0 from 41.6 in November is unlikely to have a significant impact on forecasts for Fridays non-farm payrolls.  However, combining this morning’s ADP employment report, indicating a payroll decline of -84K, and the fact that the non-manufacturing ISM employment index is still well below 50 the probability of positive payrolls is marginally reduced.

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ISM Could Bode Well For Payrolls

January 4th, 2010 Michael McDonough Comments off

The manufacturing ISM rose to 55.9 from 53.6 in November. Looking at the components the Prices Paid Index rose to 61.5 in December from 55.0, while New Orders jumped to 65.5 from 60.3 in November. But, the big story may be in the Employment Index, which climbed to 52.0 in December from 50.8. This result could bode well for payrolls on Friday, especially if confirmed by the non-manufacturing ISM’s employment index and the ADP employment report.

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Chicago PMI Moves Higher

December 30th, 2009 Michael McDonough Comments off

The Chicago PMI’s better than anticipated reading of 60.0 in December from 56.1 a month prior continues to indicate improving business conditions throughout the Chicago area–and a potentially positive forward looking indicator toward December’s ISM. All of the indicator’s components, excluding inventories, have moved above the break-even point of 50. The most noteworthy jump was in the employment index, which rose to 51.2 from 41.9 a month prior. This is the first time the Chicago PMI’s employment index has demonstrated growth since November 2007-a potential positive for payrolls.

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3Q09 GDP Revised Down, But 4Q Still Looks Strong

December 22nd, 2009 Michael McDonough Comments off

This morning’s unexpected downward revision of third quarter GDP to 2.2% from 2.8% was unexpected, but should be made up for by growth around 4.5% in the current quarter.  Looking at this morning’s data, several components were revised between the preliminary and final GDP estimate leading to a decline of -$17.3 billion. The revisions were mostly due to faster inventory liquidation, shrinking net export deficit, marginally lower consumer spending, and less nonresidential fixed investment.  Considering that this data is now three months old, and the outlook for the current quarter remains strong the market reaction from this surprise should be kept at a minimum. But, this data does highlight the fragility of the current economic recovery; lets not forget the preliminary estimate indicated third quarter growth of 3.5%.

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Housing Pains & Inflation Creep

November 18th, 2009 Michael McDonough Comments off

October’s Housing Starts disappointed the market finishing at an annual rate of 529,000 (-10.6%), while September’s release was revised up to 592K from 590K. Permit’s in October declined -4.0%, to 552K. Single-family starts fell -6.8%, while multi-family homes plummeted by -34.6%. The Bloomberg consensus forecast was for starts at 600K, with forecasts ranging from 570K to 630K.  This release was indicative of a housing market that is struggling rather than in the midst of a strong recovery.

Additionally, the level of mortgage applications continued to decline,–purchase applications hit a 12 year low–likely due what would have been the expiration of the first time home buyer tax credit.  Meaning, those looking to take advantage of the tax credit already have; it will take some time for a new group of buyers to enter the market on the back of the the tax credit’s extension.

October Consumer Price Index rose +0.3% after rising +0.2% in September. This compares to a Bloomberg consensus forecast of +0.2%. The core CPI increased by +0.2% during the month after rising +0.2% a month prior.  The main culprit behind the month’s larger than anticipated jump was a 1.7% increment in vehicle prices, which if factored out would have led to a flat core CPI number.  As expected, energy prices climbed 1.5%, adding momentum to the headline release.  Surprisingly, food prices were relatively stable during the month rising only +0.1%.  Despite adding some ammunition for inflation hawks, I do not believe this report indicates any significant inflation concerns over the near-term, but of course should be monitored as an eventual uptick inflation is inevitable.

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Industrial Production Shows Modest Gain due to Utility Output

November 17th, 2009 Michael McDonough Comments off

Industrial Production rose +0.1% in October, versus a Bloomberg consensus forecast of +0.4%.At the same time September’s reading was revised up from +0.6% to +0.7%.  As I warned in my US Economics Week Ahead, manufacturing production lost -0.1% during the month while utility output more than offset this decline by climbing 1.6%, on what was likely a cold October–without this increment IP would have finished the month slightly negative.  Mining output fell -0.2% during the month.  Nevertheless, IP has finished in positive territory for four consecutive months.  Capacity utilization finished the month at 70.7%, compared to 70.5% in September.

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October’s Retail Sales: The Devil’s in the Details

November 16th, 2009 Michael McDonough Comments off

As I mentioned in my week ahead, retail sales would likely set the pace for the week, and we received the data this morning. Retail sales rose +1.4% in October, compared to a revised -2.3% change in September (originally -1.5%). This was well above the latest Bloomberg consensus forecast of +0.9%,however, this good news was at least partially offset by the prior month’s revisions.

Retail sales x-autos climbed only +0.2% during the month, after rising a revised +0.4% in September (previously reported +0.5%). This was below the Bloomberg consensus forecast of +0.4%.

The good news is that the ex-auto’s index has gradually continued to trend higher since its collapse the end of last year.  The not so good news is that most all of October’s gains came from auto sales, which were recovering from a sharp drop in September caused by the expiration of the US government’s ‘Cash for Clunkers’ program-it is very unlikely these type of increments will be sustained.  Additionally, downward revision to past sales data will likely cause 3Q09 GDP to be revised down 0.1%, which combined with last week’s wider than anticipated trade deficit should lower 3Q09 GDP to 3.0% from 3.5% indicated by the advanced estimate.

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Trade Data: Good News for Recovery, But Wider Than Anticipated Deficit Likely Means Downward Revision to Q3 Growth

November 13th, 2009 Michael McDonough Comments off

September’s trade deficit widened more than anticipated to -US$36.5B from a revised -US$30.8bn in August (originally -US$30.7bn).  Exports rose by +2.9% to US$132.0B, while imports were up a more significant +5.8% to US$168.4B–with auto imports rising a substantial US$1.4bn.  It is not at all unusual for the trade deficit to widen during the early stages of an economic recovery.  But, the wider than anticipated trade gap could place some downward pressure on third quarter GDP growth, which according to the advance release was estimated at 3.5%.  The data presently available would indicate a growth rate of closer to 3.0%.  At the same time, stronger US exports should help bolster the domestic manufacturing sector.

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Morning Macro Recap: ISM & Pending Home Sales

November 2nd, 2009 Michael McDonough Comments off

The ISM manufacturing index rose in October to 55.7 from 52.6 in September, which was above expectations.  This was the highest reading for the index since April.  The prices paid index climbed to 65.0 in October from 63.5 a month prior. The employment index jumped to 53.1 during the month from 46.2 in September. The new orders index fell slightly to 58.5 in from 60.8.  The rise in the employment index was quite drastic and unexpected, and if confirmed by the non-manufacturing ISM and ADP employment report we could see some upward revisions to the consensus survey for Friday’s employment report.  Interestingly,there have only been three occasions where an ISM employment report above 50 coincided with a decline in payrolls, however, I feel pretty safe in saying this month will be the fourth occurrence.  Nevertheless, any job growth, especially if sustainable, would be a big positive for the US economy.

September’s pending home sales rose 6.1%, which is the 8th consecutive month of gains for the index.  The likely driver behind this jump is home buyers trying to sign contracts and close deals in time to take advantage of the first time home buyer tax credit.  On a year over year basis pending home sales are up 21.2%

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