Pragmatic Capitalism

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Complete Confusion Over the Trajectory of US Manufacturing

By Walter Kurtz, Sober Look

The divergence between the two US manufacturing gauges (discussed here) is making market participants uneasy – again. The Markit PMI measure (both seasonally adjusted and unadjusted) for March was clearly in growth territory (see figure 1).

Markit’s commentary on US manufacturing was incredibly upbeat.

Chris Williamson, Chief Economist, Markit: – “Manufacturers enjoyed another month of strong output and order book growth in March, finishing off the best quarter for two years. The sector will have provided a firm boost to the economy in the first quarter, with output possibly growing by as much as 2% (roughly 8% annualised) compared to the final quarter of last year.

“It is encouraging to see the upturn generating more jobs, with the survey suggesting that approximately 15,000 extra employees were taken on in the sector in March.

The Institute for Supply Management (ISM) however published a rather different report (see figure 2).

LA Times: – Growth in the crucial manufacturing sector unexpectedly slowed in March as companies reported fewer new orders and less production compared with the previous month. 

The Institute for Supply Management’s widely watched purchasing managers index dropped to 51.3 last month compared with 54.2 in February. The reading came in below analyst expectations of about 54.

A reading above 50 indicates growth in the sector, which covers a wide variety of industries.

Purchasing managers’ comments highlighted by ISM indicated that reduced government spending and uncertainty about federal regulations were among the reasons for the March slowdown.

Both measures are above 50, showing at least some expansion, but it feels as if these surveys came from two different countries. A number of questions remain unanswered. Is the sequester starting to have a material impact on manufacturing orders? Are we entering the seasonal growth slowdown experienced over the past 3 years (discussed here)? Whatever the case, market participants responded by taking equity indices lower.

(Figure 1 – Markit PMI)

(Figure 2 – ISM)

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Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.
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