Is Micro Weakness Smelling A Macro Collapse?

Tyler Durden's picture

Last week we suggested a reason why the market was unable to hold on to the Bernanke bid. The relative plunge in Goldman Sachs 'bottom-up' Analysts Index (GSAI) suggested that the macro 'strength' that market-savants were so focused on, could perhaps be election-biased (blasphemy). It seems this macro 'strength' divergence (highest since 1996!) from micro 'weakness' reality was enough to get the Goldmanites thinking - and unfortunately for all the cautiously optimistic managers out there, they are not hopeful. As Jan Hatzius explains,  "the GSAI remains closely correlated with other bottom-up measures, including the S&P 500 sales guidance diffusion index; and while one possible explanation is that S&P 500 companies are more exposed to non-US demand than the US economy at large, and the US has been a relative outperformer. But it is unclear whether this accounts for all of the weakness, or whether the bottom-up weakness also holds some additional leading information for the macroeconomic data."


Via Goldmans Sachs' Jan Hatzius:

  • Our Goldman Sachs Analyst Index (GSAI)—which is based on our equity analysts' assessment of conditions in the industries they cover—has sharply underperformed the macroeconomic data, to a degree not seen since its inception in 1996.
  • Has the GSAI gone off track? We don't think so, as it remains closely correlated with other bottom-up measures, including the S&P 500 sales guidance diffusion index compiled by our Portfolio Strategy group. It seems that the bottom-up message is simply gloomier.
  • One possible explanation is that S&P 500 companies are more exposed to non-US demand than the US economy at large, and the US has been a relative outperformer. But it is unclear whether this accounts for all of the weakness, or whether the bottom-up weakness also holds some additional leading information for the macroeconomic data.


Since 1996, we have conducted a monthly poll of the Goldman Sachs equity analysts about business conditions in the industries under their coverage. In general, the resulting Goldman Sachs Analyst Index (GSAI)—a weighted average of analyst diffusion indexes for orders, shipments, and other activity measures—has matched macroeconomic indicators such as the ISM manufacturing and non-manufacturing index quite closely, and has at times even provided leading information. Partly for that reason, we typically release the GSAI two days before the ISM manufacturing index.


Over the past year, however, the historical relationship between the GSAI and the ISM has weakened, and anyone who has tried to use the GSAI to get an early read on the ISM has been disappointed (see Exhibit 1). The October 2012 release was the most striking example. The GSAI fell to 32.9, a reading that historically would have been consistent with an all-industry ISM in the mid- to high 40s. However, the all-industry ISM was broadly flat at 53.9.


Exhibit 1: Relationship between GSAI and ISM Has Weakened

What lies behind this divergence? One possible explanation is that the GSAI has simply become a less useful indicator over time, perhaps because of fluctuations in the sample size or divergence between our analyst coverage and the broader equity market. But on closer inspection, it seems that the weakness in the GSAI can be explained by more fundamental factors. While it has departed from the ISM, its weakness matches other "bottom-up" measures of economic activity quite closely, as also noted by our European Portfolio Strategy team. A good example is the revenue guidance index compiled by our US Portfolio Strategy group. It is defined as the percentage share of S&P 500 companies that guide consensus revenue estimates higher minus the percentage share that guide consensus estimates lower. Exhibit 2 shows that the GSAI has tracked the revenue guidance index closely since the latter was introduced in 2006, and both have weakened in lockstep in the past year. It seems that the bottom-up message from S&P 500 companies and the analysts that cover them is simply more negative than the macro data would suggest.


Exhibit 2: GSAI Still Tracks Revenue Guidance Closely

It is less clear why the bottom-up message is so weak. One reason is probably that S&P 500 companies are more exposed to international factors than the US economy as a whole, and non-US economies have slowed more sharply than the US. Regarding the first point, non-US sales account for 33% of the total sales of S&P 500 companies, but exports account for only 14% of US GDP. Regarding the second point, Exhibit 3 shows that the all-industry non-US purchasing managers index (based on data from our Global Economics group) has underperformed the all-industry ISM index for the US over the past year. Moreover, Exhibit 4 shows that while the GSAI has underperformed the composite ISM sharply, it has actually tracked the new export orders sub-index of the ISM (which is not included in the composite) reasonably well.


Exhibit 3: Weaker Conditions Outside the US



Exhibit 4: GSAI Still Tracking ISM Exports Closely

At the same time, the domestic/foreign split is probably not sufficient to explain the entire micro/macro divergence. Although there is little evidence for a systematic lead/lag relationship between the micro and macro data, and although other measures of overall activity such as the labor market and various GDP-type spending measures also point to decent growth, the micro data do provide an independent read on activity and may be pointing to slower growth ahead. Our forecast remains for a deceleration in real GDP growth to a 1.5% pace in early 2013, despite positive bounce-back effects from both Hurricane Sandy and the 2012 droughts. The main reason lies in the step-up in the pace of fiscal restraint and the uncertainty effects that may already have started to hit capital spending.


It is possible that indicators such as the GSAI and S&P 500 revenue guidance have picked up signs of such a slowdown at an earlier stage than the macroeconomic indicators.

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Jason T's picture

no collapse, just recession..

collapse comes 2016-2019 per Armstrong

GetZeeGold's picture



Judging by the traffic one seems to care.

rp1's picture

That graph smoothed away the past.  Here are the real-time values from that indicator:

SmoothCoolSmoke's picture

Looks like someone is tryingto suck in the BTFD crowd this morning if a Crash is on it's way.  SP ramped almost 20 since 8 am.

LawsofPhysics's picture

So the paper and physical world are decoupling?  Tell me something I didn't know.

Steak's picture

Howdy ZHers.  Its been a while but I wanted to send a little Friday love via a youtube playlist.

5 hours of music here, some of the finest EDM from this past summer and early winter.

Happy hunting and may your transition to the weekend be easy breezy.

prains's picture

thanks steak


easy breezy japaneasy

NidStyles's picture

I guess it never dawned on them that perhaps it's just that Macroeconomics is bullshit as doesn't work? Nah that could never be the case....

q99x2's picture

It is also possible that the FED has newly placed fiber trunk lines into the stock exchanges.

slaughterer's picture

ES bounce of the 50WMA.   Was to be expected.  Nice bear trap sprung. Angry white men who shorted whie selling need vaseline for next week.  

Dr. Engali's picture

Dead cat bounce. We are going lower. Apple is a broken stock. The moving averages are now resistance.

Nid's picture

In other words, they don't know shit.

slaughterer's picture

Ain't shorting this bounce: do not underestimate the power of rumor about the next Dec FOMC, where Bennie adds more T flow to QEternity.  

Dr. Engali's picture

He can print all he wants. The transmission mechanism is broken. The high volume selling will overwhelm the low volume melt up.

Lewshine's picture

Hey Doc, nothing could be more satisfying to me than to see this Ponzi go into absolute meltdown spiral. But you forget that a, or any "transmission mechanism" is a fundamental factor. You also know it to be a mathmatical evaluation. Ben, Obama, Geitner...have all built their careers on defying FACTS. In fact, the greater the realism the more likely the dissapointment as they scale the wall of our disbelief, and once again escape the logical destruction they (we) so richly deserve. I'll certainly apologize if this market continues to tank, if I've offended your reason - But everytime I feel like shorting this market, I appease that desire by buying physical metals...And its worked out great.

Dr. Engali's picture

I'm with you on the PMs...I buy on weakness. But when it comes to the market it's never about's all about flow and the flow is about to go against the Bernank.

fonzannoon's picture

It's over slaughterer. No one officially gives a crap about QE. Besides if it actually does work gold will outperform the hell out of stocks anyway. so why play?

LawsofPhysics's picture

In that case, long black markets and all mediums of exchange other than fiat.

Oh yeah, long war as well.

SgtShaftoe's picture

Gold isn't a big enough market, and it's been painted with a negative market stigma for many fund managers.  Gold is great for little people, and will outperform.  Bill Gross can't move liquidly into that sector though.  They will move into stocks, and assets.  Gold will outperform, stocks will go higher in nominal terms.  In real terms, stocks may not be a great hidey hole, but it's better than treasuries.  At least you can get paid a dividend.

NEOSERF's picture

Yes, as with Greece and other "socialist" experiments in Europe, what happens when the government seeks to spread the wealth is that those with income really start finding creative ways to push it under the table. 

Quinvarius's picture

GS: "Here is a bunch of indicator hooey we told you to trade of off of last week.  By the way.  It doesn't really indicate anything."

This market is going up.  The markets move on free money.  Period.  The more these clowns scream sell, like they did at the very bottom at 2009 after QE1 was announced, the more you should buy.

SgtShaftoe's picture

exactly, there is over a trillion parked in treasuries fully at risk with no yield.  Why have all your money at risk without yield, when you can have some risk and a little yield (corporate bonds), or good dividens and a little volatility risk.  In real terms, stocks could lose, but it's better than being in FRNs, or treasury garbage.  Shit, you can buy farmland and get pretty good yield, oil wells, whatever.  The money is starting to move.  That's why stocks will go up, there's not many places to hide.

SgtShaftoe's picture


Look.  Bernanke has promised to print to infinity.  I don't understand your market bearishness.  Rumor has it that they're working on QE4 to be released by end of year.  In this environment, stocks and all real assets will levitate in nominal terms.  I get that in a non-intervention market we'd have a stock crash and deflation, but that doesn't account for Ben.  Stocks will go up, gold will launch, anything you can touch will likely go up.  Stocks will trail gold... up.  This is the beginning of the real inflation everyone has been waiting for.  

All that fund manager cash and treasuries is going to go somewhere, corporate bonds, stocks, and even some gold.  There's a shitload of cash just parked, with no yield.  It's got to move somewhere.

slaughterer's picture

+553 sgtShaftoe.

Most everyone here got a one way sign to hell painted on their forehead.  

News flash: the idiots who manage the billions in the BIG accounts (not little maggots like Einhorn, Hendry, Bass, et. al.) will go bulltard on QEternity+45bT/m

Muppet of the Universe's picture

But it should be noted, that QE is losing power.  & that? is mother fucking undeniable.  Above and beyond that, market is gonna need another retard stock bubble like aapl to reflate the market.  & there isn't any company out there with the credentials to become a 700 billion dollar epic shitfest of a stock.

In other words, fed needs to hire visionary to create brilliant ideas for aapl products.  Or to use nsa to steal as many ideas as possible and give them to aapl.

Shizzmoney's picture

Look at this graph:

This system is NOT sustainable. The way we do NOT sustainable. 

And (sadly) it's going to have to take everyone to lose everything they have to realize this.  Giles Fraser below:

slaughterer's picture

Shizzmoney, the system will not implode for at least another 15 years.  Until then, ignore one-way beartard doomer blogdribble.   There are idiots who manage 100s of billions of dollars who never in their life will short sell anything.  

fonzannoon's picture

"Stocks will go up, gold will launch"

So why own stocks?

They started QE when? Early 2000's? Chart stocks against gold. We are 12 years into this The S&P has not budged. Maybe traders have made some coin. But they prob still have lagged. So, again....why bother with stocks?

Muppet of the Universe's picture

Fed will put training wheels back on market.  retard MM PF HFM will btfd. 

Smart money will front run.  Bears will die in the tens of thousands, again.

Fractals bitches.