The ISM hit 60 in April, indicating a continuing V-Shaped Recovery in manufacturing. Despite the modest GDP report, is ISM signaling the V?
At best, the ISM report is ambiguous as to the shape of the recovery. The ISM is a backwards-looking indicator. According to some commentators, the ISM came in a bit below expectations, but to others it was above. That expectations game shows up here!
Looking beneath the spin, here are the pros and cons of an ISM recovery:
- that Q1 GDP was a bit depressed due to harsh weather, and we will spring back in Q2. One damper on that is that we already rebounded in March in good weather, and the effect may be over. Car sales in April came in down from March, and while they are up from the depressed 2009 levels, are still below the bottom in the 1991 recession
- that inventory levels remain low, so there is upside in building inventory - if the consumer keeps dipping into savings to spend. Spending rose in March as savings dipped to the low level of Sep2008. Disposable income dipped as well, meaning this spending spree should be temporary
- that this spending blip may be simply fueled by tax refunds, meaning it should stay in May but swoon by June
The key, then, is consumer spending. John Hussman takes the view that this is not just a normal recovery, and in particular personal income less transfer payments is not following the prior path, but is in a "stark contrast" to other post-war recoveries:
The ISM is said to be priced in the market already. David Rosenberg nots that traders follow an "ISM aphorism" that says the positive report is sending a sell signal:
Buy the recovery story when ISM is at 30 and policy stimulus in full swing (13 months ago); fade it when ISM approaches 60 and stimulus subsides [which is where we are now]
One thing you didn't mention was the probability that government reports have recently been bogus, to support incumbents for the primary.
Posted by: Mamma Boom Boom | Tuesday, May 04, 2010 at 12:12 PM
3:14 pm
Looking at the 5m chart for the SPX here at the close :
There is a child iteration for a top
IF the SPX fails to rally ( confirmation ) another BIG GAP DOWN tomorrow on the Open
AND ANOTHER " POSSIBLE " - 234 POINTS DOWN FOR THE DOW
1177 STOP SPX
5/3 @ 2:35 pm is the base / child , right now is the copy / parent
In other words 5/3 = today 5/4
Posted by: Hank Wernicki | Tuesday, May 04, 2010 at 12:30 PM
most reports are rigged I believe
Posted by: Hank Wernicki | Tuesday, May 04, 2010 at 01:04 PM
>most reports are rigged I believe<
Yes, it is very strange that we, now, live in a world where you're looked up to if your a great liar.
You you have odds on your call, above?
Posted by: Mamma Boom Boom | Tuesday, May 04, 2010 at 01:08 PM