Even Goldman Admits Its Spin On The PMI Collapse Makes No Sense

You have to feel bad for Wall Street's eCONomists: suddenly their 2011 record bonus is in the hands of some very angry German taxpayers. But they sure provide for some good humor. Here is Goldman with spin du jour #2, which even it admits makes no sense:

The Chicago purchasing managers' index fell to 56.6 in May from 67.6 previously. The 11-point drop was the fourth largest in the index's history (which begins in 1967). All of the sub-components of the index except for inventories declined during the month. Drops in the production and new orders components were especially steep. While all the components remain consistent with growth in the region's manufacturing sector, the sharp reversal indicates a substantially slowing in activity-similar to the message from the other regional manufacturing surveys. Our simulations suggest that supply chain problems in the auto sector resulting from the events in Japan should have their largest effect on the Chicago index. We therefore think a portion of the decline reflects this temporary shock. That being said, the rise in the inventory component looks somewhat at odds with this explanation. We are holding our forecasts for the national ISM at 56.5 (Consensus: 57.6).

And we are holding our forecast for QE3 to be well underway by the end of 2011.