Latest ISM Data and GDP Revision Paints a Mixed Picture

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Macroeconomics

We called the revised GDP number slightly wrong (we thought the third and final revision for Q2 GDP data would come in slightly lower than the previous 1.6% growth figure). Instead, the number came in at 1.7% due to “positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, private inventory investment, federal government spending, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, increased, according to the Bureau of Economic Analysis. We commented on the impact of export less import numbers within the GDP last week. Just days before the mid term elections, Q3 GDP numbers will hit the news wires.

Turning to ISM data, the headline PMI number remains positive at 54.4, indicating growth. However, a couple of positive trends appear to have shifted and in some cases, new trends have formed. Of particular concern the numbers for backlog of orders have shifted from 51.5 in August to 46.5 in September. This indicator had seen growth consistently throughout 2010 but has now shifted to contraction. The second area of concern relates to new orders. Here the numbers have shifted from 53.1 in August to 51.1 in September. According to the report, “A New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars). New orders and order backlogs of course represent demand metal markets will follow based on these two overall trends.

Automotive numbers also fall into the Ëœmixed bag’ analogy due to positive year over year growth numbers, but month over month numbers declined by 3.9% as reported by The Atlantic. According to their analysis, month over month numbers have greater relevance than year over year due to the distortion in demand created by the Cash for Clunkers program. Overall 2010 numbers will hit analysts’ forecasts of 11.4m vehicles, down from the 16-17m vehicles produced in 2007 and 2008 and down from the “seasonally adjusted annual selling rate (SAAR) for total light-vehicle sales” of 11.8m units (based on a stronger September start).

What can we conclude? The markets remain fragile good news can go a long way but the economic recovery at least currently, appears shaky at best.

–Lisa Reisman

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