There are a number of reasons that one could be bearish about the December ISM PMI report. But that doesn’t mean that we should be.
“The December PMI® registered 55.5 percent, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. The New Orders Index registered 57.3 percent, a decrease of 8.7 percentage points from the reading of 66 percent in November. The Production Index registered 58.8 percent, 5.6 percentage points below the November reading of 64.4 percent. The Employment Index registered 56.8 percent, an increase of 1.9 percentage points above the November reading of 54.9 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent. The Prices Index registered 38.5 percent, down 6 percentage points from the November reading of 44.5 percent, indicating lower raw materials prices in December relative to November.”
“The December PMI declined 3.2 percentage points from November,” roared the bear.
“The New Orders index dropped by 8.7 percentage points from November’s reading,” growled his sidekick.
“The Production Index fell 5.6 percentage points from November,” sang the Bear Chorus.
What are we to make of these Bearish indicators? Not much, really. Here’s why.
- Its seasonal really. It is the end of the year. Companies are going to have to pay taxes on unsold inventory.
- Yes it is below expectations. But does that tell us more about the PMI, or about the quality of the “expectations?”
- 11 of 18 manufacturing industries reported growth in December.
So please, before you order flowers and a sympathy card- consider this. The December reading above 50 indicates Manufacturing expansion for the 19th consecutive month, and by being above 43, an expansion of the US economy- for the 67th consecutive month.
P.S. Not to worry “The Employment Index registered 56.8 percent, an increase of 1.9 percentage points above the November reading of 54.9 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent. The Prices Index registered 38.5 percent, down 6 percentage points from the November reading of 44.5 percent, indicating lower raw materials prices in December relative to November.” Stronger employment lower inventories, and lower material prices are all positives for Manufacturing.”
The decline in the December 2014 PMI index is normal expectancy and nothing to worry about as I see it. Just look at the graph and all the other positive indicators.
Bear photo courtesy The Duffel Blog
Graph courtesy The Calculated Risk Blog
Waving bear link
