Tomorrow's report on industrial production for May is projected to post a 0.2% gain, based on The Capital Spectator's average econometric forecast (seasonally adjusted). The expected increase is modest, although it represents a substantial rebound vs. April’s 0.5% decline. Meanwhile, the Capital Spectator’s average projection for May is at the upper range of expectations relative to three consensus forecasts based on surveys of 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 is projected to decline to 50.1 (slightly above a neutral 50.0 reading) in Monday’s update for May, based on The Capital Spectator's average econometric forecast. The estimate reflects a marginal decline from the previously reported 50.7 for April. The Capital Spectator's average projection is moderately below a consensus forecast that's based on a survey 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

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

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

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).

(click to enlarge)

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).

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

Tomorrow's report on industrial production (08:30am eastern) for January is projected to post a modest 0.2% gain, according to The Capital Spectator's average econometric forecast. That's a slightly slower rate of growth vs. December’s 0.3% increase. Economists generally anticipate a 0.2%-0.3% rise for December's industrial production, based on consensus forecasts.

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

Until the past few months, I've not routinely reported on monthly manufacturing data, regional or otherwise. However, now that I'm tracking the Big Four economic indicators, which includes Industrial Production, I'm watching these indexes more closely. This morning, we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions surprised to the downside.

There are a variety of components to the diffusion index for those who wish to dig deeper. But at the top level, here is a snapshot of New York State's General Business Conditions. The contractionary reading of -7.8 was substantially below the Briefing.com consensus of 2.0. Today's number was a decline from last month's -7.3, which was an upward revision from -8.1.

Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Here is the opening

Until the past few months, I've not routinely reported on monthly manufacturing data, regional or otherwise. However, now that I'm tracking the Big Four economic indicators, which includes Industrial Production, I'm watching these indexes more closely. This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions was not good.

There are a variety of components to the diffusion index for those who wish to dig deeper. But at the top level, here is a snapshot of New York State's General Business Conditions. The -8.1 was substantially below the Briefing.com consensus of 2.0.

Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Here is the opening paragraph from the report. The one positive note was the modest improvement in future business conditions:

An early peek at economic activity for November tells us to keep our optimism in check. The ISM Manufacturing Index dropped to 49.5 last month, the first dip under the neutral 50 mark since August. In short, we have a new data point that turned negative for profiling the economy. Is it a robust sign that the economy’s tanking, or is this another head fake courtesy of Hurricane Sandy’s distortions on the economic trend? The answer—not to be confused with the speculation in the here and now—is waiting for us in the near-term future.

That won’t stop any one from worrying now, of course. No explanation needed. The ISM index slipped to its lowest level in three years by inching below August's reading by the smallest of margins. As dips under 50 go for this metric, last month’s swoon is modest. But in the current climate of recession in

With concerns over the fiscal cliff mounting, stocks traded lower for most of last week, posting modest gains on Friday and a stronger rally on Monday. Still, last week was the fourth in a row that stocks fell, marking the longest losing streak since the summer of 2011. It underscores my argument that until the fiscal cliff is resolved, markets will move based on news related to the cliff.

In light of the ongoing concerns about the cliff and recent market moves that have changed valuations, I favor two portfolio moves: reducing exposure to US industrials, while overweighting global technology.

First, some background. While there is definitively a path to compromise on the fiscal cliff, the problem in Washington continues to be that neither party is moving far from its initial position. The Republican leadership has given some ground by entertaining the notion of higher tax revenue without changing

Today the Institute for Supply Management published its October Manufacturing Report. Today's headline PMI at 51.7 percent is showing expansion for the second month after three months of contraction. The Briefing.com consensus was for 51.0 percent.

Here is the report summary:

The PMI™ registered 51.7 percent, an increase of 0.2 percentage point from September's reading of 51.5 percent, indicating growth in manufacturing at a slightly faster rate. The New Orders Index registered 54.2 percent, an increase of 1.9 percentage points from September, indicating growth in new orders for the second consecutive month. The Production Index registered 52.4 percent, an increase of 2.9 percentage points, indicating growth in production following two months of contraction. The Employment Index registered 52.1 percent, a decrease of 2.6 percentage points, and the Prices Index registered 55 percent, reflecting a decrease of 3 percentage points. Comments from the panel this month reflect continued concern over