Why The Plunge In Manufacturing ISM Matters

Via KesslerCompanies.com,

Earlier this month (12/01/2015), the US ISM Manufacturing Purchasing Managers Index (a mouthful but each word is necessary) disappointed. It was released at 48.6 (the Bloomberg Economist’s survey was for 50.5). We want to take a minute to explain why this is important, because as with any negative economic news released, it has been roundly dismissed by the optimistic Wall Street group.

In the ISM’s case, the popular refrain is that manufacturing makes up such a small portion of the US economy (the service sector is much larger) that it shouldn’t be worried about. But, we counter that the power of this series has never been in describing the whole economy, it has been in the much more valuable position of forecasting where the whole economy is going.

This series stretches back 1948, and as you will see below, it has a great record of correlating to economic output, but with a 4 month lead time.

If markets stay as calm as they are, we have to concede, that yes, the Fed will raise rates by 0.25% next week on December 16th. The Fed raising a second time, however; we think is unlikely. 

Our thesis continues to be that no matter what the Fed does, disinflation reigns with an output gap, and the yield curve will bullishly flatten. The Fed raising rates just hastens this process.

Comments

[BullyBearish]

the fed has decided that it's time to take our medicine...and that their friends are nearly out of their recent long positions

[buzzsaw99]

Nothing really matters,
Anyone can see,
Nothing really matters,
Nothing really matters to me... [/bohemian rhapsody]

[lakecity55]

I have a friend who collects aluminum cans until there are large piles, which he takes to the recycler. They were BSing one time, and the guy told my friend you can always tell when China goes to shit because the price of aluminum goes South. He said he pays no attention to the MSM, he checks on the recycler prices. This recycler sends all his cans to China.

[lasvegaspersona]

With a moniker like yours I'd expect brass to be your primary indicator.

[divedivedive]

So what happens next week if the fed doesn't raise rates ?

[InnVestuhrr]

One of the few remaining non-military useful things USA still does well, and it is sliding into the toilet.

http://www.ibtimes.com/caterpillar-cat-slashing-jobs-closing-plants-acro...

Great job liberal scum vermin parasites.

[kelley805]

J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.

Here are some signs of a coming recession.

1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.

http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell

2. Factory orders continue to drop

http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row

3. Default risk spikes

http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high

4.  M&A set record

http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/  

5. Iron ore prices tumble

http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30

6. Baltic dry shipping index tumbles

http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19

Here is how to prepare.

http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Here is how to get your mind off this stuff.

http://michaelekelley.com/category/humor/

Good luck!