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A review of recent key macro economic data

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)
The stock market has just been through another quarterly “sell on the news”. Looking at the chart of S&P 500 index, it seems that the market has its own rhythm: two or three weeks into earnings season, it is time to sell on any news, good or bad.
What’s next after the selling? Time is up again for the quarterly macro economic review. Several important economic reports just came out: Chicago PMI, Q4 GDP and the January ISM index.
The Q4 GDP came out to be a strong 5.7%, although some said it was not strong enough. Personal Consumption Expenditure was 2%, much weaker than typical V-shaped recoveries. The bright spot was a 13.3% increase in equipment and software, signaling pick up in business spending.
Although comprehensive and important, GDP data is a lagging indicator. The Chicago PMI and ISM index are more meaningful in forecasting the future. Fortunately, both reports for January were very strong.
Chicago PMI for January rose to 61.5, blowing away all expectations. It was the highest level since November 2005. Employment of the region also leapt to the highest level in five years. The ISM index registered 58.4, the highest reading for the Index since August 2004. I will not quote the specific numbers here, but both reported accelerated increases in new orders, production and employment, longer supplier deliveries, slower contraction in inventories, accelerated increase in backlog orders and higher producer prices. The exports and imports components of ISM index also reported accelerated increases.
If the manufacturing sector continues to expand at similar pace in the next several months, we can expect another quarter of reasonably good GDP growth. Admittedly, the improvement in employment will be slow, government spending is weak, stimulus not enough, and the real estate recovery takes time. But at this time positives still significantly outweigh negatives, I remain cautiously optimistic that the economic recovery is strengthening, and there is no double dip in sight.

Disclosure: No positions