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Steven Hansen
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Steven Hansen is an international business and industrial consultant specializing in turning around troubled business units; consults to governments to optimize process flows; and provides economic indicator analysis based on unadjusted data and process limitations.
My company:
Econintersect LLC
My blog:
Global Economic Intersect
  • ISM Services Was A Good Data Point Showing The Economy Is Not Falling Into An Abyss 1 comment
    May 10, 2014 8:19 AM

    All data released has negative factors - and human nature forces analysts to the negative factors like a moth to a flame. I am not talking about the brainless dribble you read in the mass media which simply dumbs down and parrots the positively biased summaries which accompany the release. I am talking about the analysis by people like me.

    I work hard at being neutral - not caring if the analysis is good or bad - just truthful - even though I realize no one reads a post saying everything is good. But I have bias - I hate data sets which I know are wrong (like BLS employment). No one wants to hear over and over how bad the BLS methods are in collecting data - or how inconsistent their report is, or how you cannot rely on the data because it will be heavily revised.

    I have another bias - surveys - which I believe from experience are inconsistent. However, the ISM surveys are an exception. This week the ISM released their services survey.

    The April 2014 ISM non-manufacturing (aka services) index continues its growth cycle, and improved from 53.1 to 55.2 (above 50 signals expansion). Important internals were even stronger.

    There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - and both have good track records in spotting an incipient recession. The Business Activity Index significantly strengthened and the New Orders Index improved - with both remaining in expansion territory.

    This index and its associated sub-indices are fairly volatile - and one needs to step back from the data and view this index over longer periods than a single month.

    The Business Activity sub-index gained 7.5 points and now is at 60.9.

    ISM Services - Business Activity Sub-Index

    The New Orders Index gained 4.8 and is currently at 58.2.

    ISM Services - New Orders Sub-Index

    The complete ISM manufacturing and non-manufacturing survey table is below.

    This survey data is released in real time, not revised - and has an excellent record in tracking recession, and not indicating false warnings. This was a good report, and should confirm the economy is not falling into an abyss.

    Other Economic News this Week:

    The Econintersect Economic Index for May 2014 is showing marginal growth acceleration - but the pattern over a half a year remains in a fairly tight range. The major soft data point remains personal income which is not part of our Economic Index. My position remains that the economy remains too strong to recess, and too weak to grow.

    The ECRI WLI growth index value has been weakly in positive territory for many months - but now in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    Initial unemployment claims went from 344,000 (reported last week) to 319,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate. The real gauge - the 4 week moving average - degraded from 320,250 (reported last week as 320,000) to 324,750. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line)

    (click to enlarge)

    Bankruptcies this Week: Oryon Technologies

    To view all the analysis and opinion posts this week [click here].

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • bobdark
    , contributor
    Comments (261) | Send Message
    I'm skeptical that this report necessarily bodes well for the economy because inventory is also going up and consumer spending stagnated in April. A lot of service activity is in US healthcare which is not an exportable product and the costs of that will create a drag on potential consumer spending for durable items. It seems that some of the activity was driven by over-optimism.
    10 May 2014, 08:14 PM Reply Like
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