Tuesday, December 3, 2013

Time to Taper? U.S. ISM Manufacturing PMI Jumps to 2-1/2 Year High in November (57.3 vs. 56.4 in October)

The economy appears to be booming again, in "new normal" terms at least. The November ISM Manufacturing PMI jumped 0.9% to 57.3% in November from 56.4% in October. The ISM Manufacturing PMI hasn't been above 57.3% since April 2011, when it hit 59.4%.

Since the Fed's stimulus program (QE) was able to reflate asset prices and the economy, the Fed will probably start to taper in the next few months, which could cause a stock market correction. Tapering could also form a resistance level above the market if market participants start to price in the end of QE. If the Fed continues to inject trillions of dollars into the system with a reflating economy, stock market bubble, and 0% rates, I think it will just make the bust worse when the Fed starts to pull the liquidity. The Fed is also trying to protect the economy from fiscal tightening in January 2014, so we'll see what happens when political volatility erupts again.

Below is a portion of the November ISM release and charts.

New Orders, Production and Employment Growing
Inventories Growing
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in November for the sixth consecutive month, and the overall economy grew for the 54th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 57.3 percent, an increase of 0.9 percentage point from October's reading of 56.4 percent. The PMI™ has increased progressively each month since June, with November's reading reflecting the highest PMI™ in 2013. The New Orders Index increased in November by 3 percentage points to 63.6 percent, and the Production Index increased by 2 percentage points to 62.8 percent. The Employment Index registered 56.5 percent, an increase of 3.3 percentage points compared to October's reading of 53.2 percent. This reflects the highest reading since April 2012 when the Employment Index registered 56.8 percent. With 15 of 18 manufacturing industries reporting growth in November relative to October, the positive growth trend characterizing the second half of 2013 is continuing."

WHAT RESPONDENTS ARE SAYING ...

"Seasonal demand has not decreased at the typical pace." (Primary Metals)
"Incoming order rate remaining strong." (Fabricated Metal Products)
"Outlook for the remainder of the year and into 2014 is trending positive." (Chemical Products)
"Overall business climate is good. Business is steady." (Transportation Equipment)
"Sequestration and cutbacks in defense spending continue to impact business." (Computer & Electronic Products)
"Market continues to be stronger than normal for this time of year." (Wood Products)
"Getting much busier toward the end of the year." (Furniture & Related Products)
"Seeing consistent uptick in demand." (Food, Beverage & Tobacco Products)
"Federal debt, deficit and inefficiency are causing a level of caution and uncertainty." (Machinery)
"Ordering for 2014 seems to be increasing in comparison to the past six months." (Miscellaneous Manufacturing)



It looks like we dodged a recession in 2012 and early 2013 (St. Louis Fed charts).


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