More bad signs here on the manufacturing front following this morning's Chicago Fed National Activity Index release. The latest reading came in at -0.56, which brings the three-month moving average to -0.04. This is the second consecutive negative reading and the third in the last four months. Current data is consistent with PMI readings that are basically hugging the expansion/contraction line.

Here's a bit more detail from Econoday:

Manufacturing has been hitting some bumps and is the major negative dragging down the national activity index in April which fell to minus 0.53 vs an already weak minus 0.23 in March. In both months, manufacturing production fell, down 0.4 percent in April following a 0.3 percent decline in March (manufacturing component in the industrial production report).

The

By: The ETF Professor

Here is an interesting anecdote regarding U.S.-focused sector ETFs. Most economic data this year has been solid and the Dow Jones Industrial Average keeps climbing to new all-time highs. However, when looking at the nine sector SPDR ETFs, investors will find the Industrial Select Sector SPDR (XLI) in fifth place year-to-date.

XLI, which is home to $4.82 billion in assets under management, is the fifth-best SPDR ETF despite a year-to-date gain of 15.4 percent. The fund has narrowly outperformed its energy and utilities counterparts while sharply outpacing the Technology Select Sector SPDR (XLK) and the Materials Select Sector SPDR (XLB).

It has been low beta sectors that have outperformed over the past three years and maybe that means industrials are ready to take off. If that is the case, investors may want to consider these alternatives to XLI.

First Trust Industrials/Producer Durables

A number of economic indicators have been showing signs of improvement. Housing prices, starts, and permits have all been on the rise. And, despite the incredibly low civilian participation rate, initial jobless claims and nonfarm payrolls also continue to improve. Yet there are a few numbers that are heading in the wrong direction.

The ISM manufacturing and services indices are weakening. The manufacturing index recently declined to 50.7 for the month of April. That's down from 51.3 in March and 54.2 in February. In fact, it has been in a downward trend since 2011. As for the services index, it fell to 53.1 in April from 54.4 in March and 56.0 in February. Any number above 50 indicates expansion, while a number below 50 signals contraction. While both indices are above the critical level, the deterioration in both is worrisome.

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Furthermore, the Empire State

Industrial production fell more than expected last month, sliding 0.5% in April. That’s a bit deeper than economists projected, and it's an even bigger drop relative to the modest gain that my econometric modeling suggested. But based on today's release, it's obvious that April was a rough month for the industrial sector. The worst, in fact, since last August. The manufacturing component of industrial activity didn’t fare much better, slipping 0.4% last month. That’s the second consecutive monthly retreat for manufacturing, according to this series. It’s also the first time that manufacturing in this data set slumped for two months running since 2009.

The slowdown in industrial output is visible in other indicators, including the survey data via the ISM Manufacturing Index. But the weakness in the industrial/manufacturing slice of the economy would be all the more troubling if the labor market was exhibiting equally dark signs of

Bulls looking for some confirmation of recent better-than-expected economic data did not get it this morning from the Empire Manufacturing report (or for that matter, Industrial Production and Capacity Utilization). While economists were forecasting the headline reading to increase from +3 to +4, the actual reading came in weaker than expected at -1.4, and it represented the lowest reading since January.

This month's reading showed broad based weakness as seven out of the 10 subcomponents were negative and none of the categories showed an increase vs. April's reading.

While Prices Paid currently has the highest reading at 20.5, it also saw the largest decline on the month as it was at a level of 28.4 last month. After Prices Paid, the next largest decline came in the Average Workweek, which fell from 5.7 in April to negative 1.1 in May. The decline in the average workweek comes on the heels

Tomorrow's report on industrial production for April is projected to post a 0.2% gain, based on The Capital Spectator's average econometric forecast (seasonally adjusted). The expected increase represents a modest slowdown vs. March’s 0.4% rise. Meanwhile, the Capital Spectator’s average projection for April contrasts with expectations for a drop in industrial production via consensus forecasts from economists.

Here's how the numbers stack up, followed by brief definitions of the methodologies behind The Capital Spectator's projections:

R-1: A linear regression model using the ISM Manufacturing Index to predict industrial production. The historical relationship between the variables is applied to the more recently updated ISM data to project industrial production. The computations are run in R.

R-4: A linear regression model using four variables to project industrial production: US private payrolls, an index of weekly hours worked for production/nonsupervisory employees in private industries, the ISM Manufacturing Index, and the

Today, the Institute for Supply Management released its latest report on business for the manufacturing sector that indicated manufacturing activity declined in April. At 50.7, the purchasing manager's composite index (PMI) declined 1.17% since March, and dropped 6.28% below the level seen a year earlier. That gave an indication of slowing manufacturing activity for the second consecutive month.

Respondents appear generally positive overall with many citing strong trends and steady pace:

• "Business can be described as flat at best." (Food, Beverage, and Tobacco Products)
• "Production is still strong; several new projects to support alternative energy." (Primary Metals)
• "Slight uptick in business, but overall continuing slowdown in defense due to budget/sequester." (Computer and Electronic Products)
• "We have concerns about safety of doing business in South Korea. Our

Today's ISM manufacturing report was lackluster. Nothing to cheer about, nothing to fret about. It suggests the economy is still plodding along at a 2% growth rate.

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The ISM manufacturing index met expectations, but as the chart above shows, it is consistent with overall economic growth of only 2% or so.

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Export orders softened, but remain reasonably healthy. The New Orders index rose marginally, but remains relatively soft.

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Manufacturers' plans to increase hiring also softened, and now point to very slow growth going forward. There's a widespread lack of confidence and an unwillingness to invest revealed here.

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Conditions in the eurozone are still weak, but they don't appear to be deteriorating further. We're stuck in a slow-growth world. Doomsters will undoubtedly use the airplane analogy to suggest that with economies moving along at just

The ISM Manufacturing Index is projected to decrease slightly to 51.2 in tomorrow's update for April, based on The Capital Spectator's average econometric forecast. That reflects a marginal decline from the previously reported 51.3 reading for March. The Capital Spectator's average projection is incrementally higher than consensus forecasts in three surveys of economists.

Here's a closer look at the numbers, followed by brief summaries of the methodologies behind The Capital Spectator's projections:

VAR-1: A vector autoregression model that analyzes the history of industrial production in context with the ISM Manufacturing Index. The forecasts are run in R with the "vars" package.

VAR-8: A vector autoregression model that analyzes eight economic time series in

The Chicago Federal Reserve released new data today on Midwest manufacturing activity. It reported that its Midwest Manufacturing Index increased 0.3% in March from February, following a 1.1% monthly gain in February, and reached the highest level in almost five years. On an annual basis, regional manufacturing activity in the Seventh Federal Reserve District improved by 6.4% in March from a year earlier, more than twice the annual 2.9% increase in the national manufacturing component of industrial production through March (see chart below).

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On a quarterly basis, Midwest manufacturing output grew by 6.1% during the first quarter of 2012 from a year ago, and national manufacturing output grew by 2.6%. In comparison, the overall US economy (real GDP) grew by only 1.8% from the first quarter of 2012 to the first quarter of 2013.

Here are some other highlights of manufacturing activity in the Seventh Federal

The April Advance Report on March Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:

New orders for manufactured durable goods in March decreased $13.1 billion or 5.7 percent to $216.3 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.3 percent February increase. Excluding transportation, new orders decreased 1.4 percent. Excluding defense, new orders decreased 4.7 percent.

Transportation equipment, also down two of the last three months, led the decrease, $11.0 billion or 15.0 percent to $62.4 billion. This was led by nondefense aircraft and parts, which decreased $8.5 billion. Download full PDF

The latest new orders number at -5.7 percent was below the Briefing.com consensus of -3.1 percent. Year-over-year new orders are up a fractional 0.5 percent.

If we exclude transportation, "core" durable goods were down 1.4 percent.

In the past I haven't routinely followed the regional manufacturing indexes, but as a resident of the Fifth District, this is one I pay attention to. The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to nation's Central Bank.

The complete data series behind today's Richmond Fed manufacturing report (available here), which dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.

Tuesday the manufacturing composite slipped into contraction territory at -6, down from 3 last month, which was a decline from 6 the month before. Because of its highly volatile nature of this index, I like to include a 3-month moving average to facilitate the identification of trends (now at 1.0).

Note from dshort: This commentary has been revised to include this morning's release of the March data for Industrial Production and the Consumer Price Index, the latter of which permits us to calculate Real Retails Sales based on Friday's Advance Report on Retail Sales.

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

I've now updated this commentary to include March Industrial Production, which

Tomorrow's report on industrial production for March is projected to post a 0.2% gain, according to The Capital Spectator's average econometric forecast (seasonally adjusted). The expected increase represents a substantial slowdown vs. February’s 0.8% rise. Meanwhile, the Capital Spectator’s average March projection is roughly in line with consensus forecasts from economists.

Here's how the numbers stack up, followed by brief definitions of the methodologies behind The Capital Spectator's projections:

R-1: A linear regression model using the ISM Manufacturing Index to predict industrial production. The historical relationship between the variables is applied to the more recently updated ISM data to project industrial production. The computations are run in R.

R-4: A linear regression model using four variables to project industrial production: US private payrolls, an index of weekly hours worked for production/nonsupervisory employees in private industries, the ISM Manufacturing Index, and the stock market (S&P 500). The historical relationships

Today the Institute for Supply Management published its February Manufacturing Report. The latest headline PMI at 51.3 percent is the fourth month of expansion following a month of contraction. However today's number was below the Briefing.com consensus of 54.0 percent.

Here is the key analysis from the report:

Manufacturing expanded in March as the PMI™ registered 51.3 percent, a decrease of 2.9 percentage points when compared to February's reading of 54.2 percent. This month's reading reflects the fourth consecutive month of growth in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March PMI™ indicates growth for the 46th consecutive month in the overall economy, and indicates expansion in

The ISM Manufacturing Index is projected to rise to 54.8 in Monday's update for March, based on The Capital Spectator's average econometric forecast. That reflects a modest increase over the 54.2 reading for February. By contrast, the consensus forecasts in two surveys of economists predict a modest decline for ISM's March report.

Here's a closer look at the numbers, followed by brief summaries of the methodologies behind The Capital Spectator's projections:

VAR-1: A vector autoregression model that analyzes the history of industrial production in context with the ISM Manufacturing Index. The forecasts are run in R with the "vars" package.

VAR-8: A vector autoregression model that analyzes eight economic time series in

The March Advance Report on February Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:

New orders for manufactured durable goods in February increased $12.4 billion or 5.7 percent to $232.1 billion, the U.S. Census Bureau announced today. This increase, up five of the last six months, followed a 3.8 percent January decrease. Excluding transportation, new orders decreased 0.5 percent. Excluding defense, new orders increased 4.5 percent.

Transportation equipment, up two of the last three months, drove the increase, $13.3 billion or 21.7 percent to $74.4 billion. This was led by nondefense aircraft and parts, which increased $9.0 billion. Download full PDF

The latest new orders number at 5.7 percent was above the Briefing.com consensus of 3.8 percent. Year-over-year new orders are up 7.8 percent.

However, if we exclude both transportation and defense, "core" durable goods were down 2.5

Tomorrow's report on industrial production for February is projected to post a 0.4% gain, according to The Capital Spectator's average econometric forecast. The expected gain compares with a slight 0.1% decline in January. Meanwhile, the Capital Spectator’s average February projection is at the low end of consensus forecasts from economists.

Here's how the numbers stack up, followed by brief definitions for the methodologies behind The Capital Spectator's projections:

R-1: A linear regression model using the ISM Manufacturing Index to predict industrial production. The historical relationship between the variables is applied to the more recently updated ISM data to project industrial production. The computations are run in R.

R-4: A linear regression model using four variables to project industrial production: US private payrolls, an index of weekly hours worked for production/nonsupervisory employees in private industries, the ISM Manufacturing Index, and the stock market (S&P 500). The historical relationships between

The chart below shows the relative strength of the Large, Mid, and Small Cap Industrials sectors relative to their respective indices (S&P 500, S&P Midcap 400 and S&P Smallcap 600). When the lines are rising it indicates that the sector is outperforming its respective index, while a falling line is indicative of underperformance. Within the different Industrials sectors, there is an interesting divergence occurring, where both the small and mid cap sectors are outperforming their indices by a wide margin, while the large cap Industrials sector has been lagging.

(click to enlarge)Although the divergence may seem puzzling at first glance, it makes perfect sense if you think about it. Stocks in the Industrials sector are economically sensitive, so when the economy is growing, the sector does well, but when the economy slows down, it sells off. Large cap stocks in the Industrials sector are usually multi-national companies with operations