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  • 2-1-2011: ISM - Good and Bad 0 comments
    Feb 1, 2011 5:11 PM | about stocks: RJA, TOT
    Even with the unrest in Egypt and Snowpocolypse, there is a bright spot - the ISM report released this morning.  The Purchasing Manager's Index (PMI) came in a 60.8%, above most economists' expectations.  This marked the 18th consecutive monthly gain in the manufacturing sector while the overall economy has been growing for the past 20 months1.

    14 of the 18 manufacturing components advanced: Petroleum & Coal Products; Primary Metals; Apparel, Leather & Allied Products; Wood Products; Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; Machinery; Paper Products; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.  

    The remaining components declined: Textile Mills; Printing & Related Support Activities; Plastics & Rubber Products; and Nonmetallic Mineral Products.

    The employment component came in at 61.7%, up 2.8% from the seasonally adjusted December report.  This is the 16th consecutive month of growth in manufacturing employment.  Given the high level of structural unemployment because of the housing boom, we will need much more growth in the manufacturing sector to see significant improvement.  

    While the above mentioned is definitely a positive sign for the economy, what I'm paying attention to is the prices paid component.  The ISM Prices Index came in at 81.5%; 9% higher than December's report, and the highest since July 2008.  The prices paid component in August 2010 was 61.5; right around the time speculation on QE2 came to market.  Since then, prices paid have increased 32.52%.  

    The CPI will show otherwise, but if you pay attention to everything but the CPI, all signs point to inflation.  What should surprise no one, all 30 commodities tracked by the PMI were up in price. The Reuters/Jefferies CRB Index is up about 25% since the end of August.  Asian nations have already acted to stem rising inflation by raising rates and enacting other measures like hiking the reserve ratio.  The UK is already experiencing inflation rates beyond the Bank of England's targeted rate and ECB President Trichet commented he will do whatever is necessary to keep price stability in check.  The Dollar Index is down about 2% for the year and the 10 year Treasury is up almost a basis point from the announce of QE2.  

    I recommend researching RJA and TOT
    Themes: ISM, Inflation Stocks: RJA, TOT
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