Tuesday, April 01, 2008

ISM Manufacturing report does not show any significant improvement

There was a little improvement in the ISM Manufacturing report for March, but there was more weakness in key areas as well. Although the overall PMI was a tad better, there was a sharp contraction in both new orders and production, the core of the manufacturing sector. Other bad news was that the backlog of orders continues to contract at an even faster rate. Manufacturing will continue to contract until we see a pickup in the pace of new orders. The primary good news was that exports are booming and growing at a faster pace. Also good news was that imports were down sharply. Slightly good news was that employment contraction slowed to a snail's pace.

Recession? Well, by historic measures, the PMI level does not indicate that we are in a recession at all:

A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates the overall economy is growing and the manufacturing sector is contracting at this time. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (49.2 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for March (48.6 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

Alas, the current economy is by no means in line with historic patterns. Still, historic patterns do tell us not to be too gloomy.

-- Jack Krupansky

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