Not to make too much of one data point, but one of the good things about ISM data is that unlike tomorrow’s employment report, it is final. Whatever numbers the Labor Department reports tomorrow will be revised and re-revised.
Stock traders were mildly encouraged by today’s report from the Institute for Supply Management about November manufacturing trends throughout the United States. The headline composite number was 52.7%. ISM says that 50% differentiates between growth and no growth. On reading the details of the report, it turns out this this PMI headline number is aggregated from five sub-indices: new orders, production, employment, supplier deliveries, and inventories.
What is not included is order backlog. Unfortunately, backlogs have been declining every month for six months. Here is the summary data of the PMI and all the sub-indices.
| MANUFACTURING AT A GLANCE NOVEMBER 2011 |
||||||
|---|---|---|---|---|---|---|
|
Index |
Series Index Nov |
Series Index Oct |
Percentage Point Change |
Direction |
Rate of Change |
Trend* (Months) |
| PMI | 52.7 | 50.8 | +1.9 | Growing | Faster | 28 |
| New Orders | 56.7 | 52.4 | +4.3 | Growing | Faster | 2 |
| Production | 56.6 | 50.1 | +6.5 | Growing | Faster | 3 |
| Employment | 51.8 | 53.5 | -1.7 | Growing | Slower | 26 |
| Supplier Deliveries | 49.9 | 51.3 | -1.4 | Faster | From Slowing | 1 |
| Inventories | 48.3 | 46.7 | +1.6 | Contracting | Slower | 2 |
| Customers’ Inventories | 50.0 | 43.5 | +6.5 | Unchanged | From Too Low | 1 |
| Prices | 45.0 | 41.0 | +4.0 | Decreasing | Slower | 2 |
| Backlog of Orders | 45.0 | 47.5 | -2.5 | Contracting | Faster | 6 |
| Exports | 52.0 | 50.0 | +2.0 | Growing | From Unchanged | 1 |
| Imports | 49.0 | 49.5 | -0.5 | Contracting | Faster | 2 |
| OVERALL ECONOMY | Growing | Faster | 30 | |||
| Manufacturing Sector | Growing | Faster | 28 | |||
As you can see, backlogs were reported to be contracting, and doing so faster than the prior month. In that context, note that inventories of respondents have been declining for two months. Prices have also been declining for two months. Also, suppliers are getting goods to these respondents a bit faster than the month before. (Note that there is much more raw data in the linked full report.
All these are consistent with the lead-in to recession.
Not only that, though the PMI was over 50, eight industries were identified as showing growth while nine reported contraction. The PMI and the sub-indices are diffusion measurements (therefore the percentages), so they do not measure the intensity of expansion or contraction. Thus it is possible to be net in contraction with an above-50 PMI if the contracting firms/industries are doing so with greater intensity than the expanding ones.
Some of the regional Fed surveys of manufacturing have shown similar trends, meaning lower backlogs despite order and employment growth. Something is simply not making sense. Backlogs should be up if economic activity is re-accelerating after a brief “soft patch”. At least that’s how I see it.
Exports were up per the chart above. Given the latest data out of the U.K., Europe and China, what is the chance that that trend continues, especially with the dollar having stabilized and even strengthened against a number of its trading partners?
Signs of a coordinated global economic recession are spreading more or less daily. Just today Sir Mervyn King, who heads the Bank of England, indicated that U.K. banks could be facing another credit crisis and urged them to consider building reserves and thus limiting bonuses and dividends.
Here in the U.S., I confess to being befuddled by the pervasive commentary about how strong America’s banks are. Well, relative to many European banks, probably so. But Bank of America stock is below its starting level in 2009 and is for all intents and purposes trading at a multi-decade low. Citigroup is, adjusted for its reverse split, in even weaker shape on the charts. Lordly JPM has a miserable chart as well and is trading at essentially its share price of Jan. 1, 2009. So even though the average stock has done very well since then, the TBTF banks have lagged. As I have been asserting since early 2010, the stock price weakness of the large banking companies is a canary in a coal mine. Something wicked may be this way coming, and the stock market is implying (so I infer) that many assets are not worth anything close to what the companies’ accountants are allowing the CEO to claim they are worth. In a full-fledged recession, in which direction will said already-overvalued assets move? Of course they will lose more value. And given our highly leveraged TBTFs, what good does it serve if they are merely less insanely leveraged than other banks in other parts of the world?
Looking forward, as alluded to in the lede above, indeed this ISM data will be forgotten tomorrow by the traders, but its numbers may well be more significant from a forecasting standpoint.
Industrial and general economic recessions should not mean the end of the world as we know it. Unfortunately, in a system in which “money” is generated by sale of debt, and in which it is now expected that no matter how much worse Federal finances are than Spain’s, intensified deficit spending is a given if a new recession is indeed upon us. (As always, regular readers know that I am hewing to conventional terminology and that I do not believe that the ‘Great Recession’ ever ended.)
As the central banker to the civilized world, the U.S. can get away with a form of chartalism for a long time, I suspect. But the idea that an unending stream of promises to pay can bring prosperity even if “belief” in the Federal debt as being “money good” requires a leap of faith in the wisdom of the taxing and spending habits of the government, no matter how well-intentioned, that may not be well-supported by experience.
A new recession in the U.S. and U.K. despite massively low short-term interest rates below the rate of inflation of most consumer prices may convince people that a new approach should be tried. It could be called free market capitalism.
the blog is losing steam, rapidly. i have no idea what to make of this piece, literally no idea what i just read. i can’t remember a thing. for what it’s worth (likely nothing), i think you guys need some teeth. i was contemplating but now i am certain i will be moving on. good luck and fortune to all contributors and readers.
Is it “dd”, or “a.d.d”? A fond farewell sir, may your efforts be better appreciated elsewhere.
Farewell Double D. May you find a blog with short texts, less complicated words and less data. And no capital letters. In the meantime, try http://www.jalopnik.com
I know, DD, we do write about complex ideas. But we see renewed weakness ahead; I hope the other guys you read see it coming. Thanks for reading.
[...] DoctoRX suggests that “the ‘better than expected’ ISM Manufacturing Data is actually consistent with an evolving industrial recession.” GA_googleAddAttr("AdOpt", "1"); GA_googleAddAttr("Origin", "other"); [...]
as a longtime reader, i swung back to see what the reaction would — Matt’s comment was particularly predictable. Canadien, i’m not sure you know a thing about me. have you read any of the many, many posts i’ve left over the last 18 months here?
but i feel the same way about my post.
the issue i take is that this continued discussion of the economy, at least what is visible to the “economists” now 5 years since the housing peak and 4 years since the initial credit freeze, what does the topical “data” mean — is it real, or is it simply manipulated by a economic central planner (the Fed) and gov’t gone wild? is it complicated as those on this thread say, or is it a fool’s errand? i certainly do not believe it is all that helpful from an investment standpoint.
this data is the same date referred to by keynesian, demand-side economists — i can no longer be a part of procession. with over $6T of fiscal and monetary stimulus having been injected into the economy, in the U.S. alone, over the last 3 years, who cares about the rest? we all know this will not work so why not focus on the cause, effect and outcome of this more important concept?
i’m in my 3rd year of precious metals ownership, a relatively new asset class for me. there is no recession coming because as far as i’m concerned, we never left the last one. one needs to forget alot about their past investing experience and open their eyes to a gulag economy, governed by fiat currency manipulation and destruction, deep and untenable deficits and fear of a gov’t that has lost control of its function — worse, i think they are beginning to realize it, which is when the real danger exists.
the structural issues that need to be considered, in my opinion, are much deeper than the ISM, transitory inventory numbers, etc. in this case, i am most intrigued by Keith Weiner’s writings.
i do agree that at times, it looks like we are “going Japanese” as DoctoRx said. this is also a more important discussion as i see it.
i caution those who overlook my comment to not outsmart or outcomplicate yourself — i’ve tried this before and it doesn’t work. the date so often presented by the MSM, as well as much clearer and deeper thinks like here at the Daily Capitalist, is no longer what it seems, in my view.
the crack-up boom is the next event, the rest is just noise. that’s all i was trying to say and that is my main point. buckle-up and take physical delivery while you can, if it goes as i think it will then there will be no ISM, because there will be no gov’t department left to report it.
excuse the typos (“data” was often “date”, etc.)
DD:
Thank you for your comment and thank you for reading us. But your comment about “this continued discussion of the economy” is a misunderstanding of what we are trying to do.
I think I have made my ideas about the value of data well known. Hayek aside, how else are you going to make sense of the world if you don’t evaluate data?
First, as you know, we see the world through the lens of Austrian economic theory. That is, we interpret data with Hayek’s criticism of contemporary econometrics in mind. Second, not all of the data is government data. It all may be flawed to some extent, but we pay careful attention to trends.
So far our forecasts and analysis have been for the most part, spot on, in terms of the direction of the economy. If you think that is not valuable for your investment decisions, that’s fine, but I think most readers find in very useful.
My concern is that many so-called libertarian, Austrians see the collapse of civilization right around the corner and see the world with an apocalyptic vision. I think the problems are vastly more complicated than that and I written about these issues frequently (e.g., hyperinflation). Yet some folks would rather listen to Marc Faber or Gary North and others and believe the world as we know it is ending. The problem is that many of these types have been forecasting this scenario for years and years. When I first was introduced to these concepts 40 years ago, the end of civilization was a popular movement among libertarians.
It’s not that simple, DD.
It’s not my goal to keep you as a reader but to let other readers know what our view of the world is and to defend our analysis.
Good luck,
Jeff Harding
Jeff, as you know i have a great deal of respect for your efforts here on this site and moreso your acumen. i am quite certain i do evaluate the world, and i’m more comfortable with my record. it’s just that the way we look at things does (and must) evolve with the conditions and the times. i’ve made my point, i stand by it … only time will tell.
of course your goal isn’t to keep some single reader !!! Heaven forbid.
after all these years as an Austrian, i would not expect you to refer to 40 years ago (when the fiat world was truly hatched) as even remotely of the same ilk as the times are now. to compare 1971 to now … well i disagree. it is that simple, it’s absurdly simple as i see it. it’s the timing that is difficult.
thank you for your response, i do appreciate it — and best of luck to you, your family and your readership.
My point was that those who are newly introduced to AET are mostly likely to see the end of the world.
i do not believe implications of whom has been introduced to what or when is at all relevent to making a current judgement.