ISM Data Supports Sense of Return to Growth

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Macroeconomics

There have been lots of metrics flying around this week. First we reported the GDP figures, heavily skewed to the upside because of a dramatic reduction in destocking but nevertheless supportive of a return to significant growth in the US economy. Now we have the Purchasing Managers Index (PMI) figures from the Institute of Supply Management (ISM) compared in a Reuters article with metrics from freight companies looking at container movements and airfreight traffic.

According to John Kemp writing in Reuters this week, the ISM’s composite index rose last month to 58.4,  its highest level since August 2004, as U.S. manufacturers reported a widespread pick up in business activity. Production at 66.2 and orders at 65.9 moved higher, and are far above the 50-point threshold dividing expanding activity from contraction. Firms reporting orders and output rose in January outnumbering those reporting declines by a margin of around 3-1, confirming the broad base of the rebound now underway.

The article went on to compare the positive ISM figures with reports of improved container traffic through west coast ports, specifically LA and Long Beach where the number of containers has risen consistently month over month in Q4 and January of Q1. Maybe more important, because they include the movement of goods manufactured in the US, railroad inter-modal container movements have been on an upward trend since the middle of last year and have now exceeded levels of this time last year which admittedly were being hit by the onset of the recession but it is a positive benchmark to exceed.

Airfreight traffic is also up, rising strongly in the last three months of 2009, as was the movements of chemicals up by 13% and approaching levels seen prior to the onset of the recession.

All this is good news but we would caution against excessive exuberance. There is still the possibility of a fall back in the second quarter if confidence is knocked by any one of a dozen potential issues still on the horizon. We are seeing now how small adjustments to Chinese reserve requirements have made metals markets tumble underlining how fragile confidence is and how market prices are still carrying a high level of speculative expectation.

–Stuart Burns

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