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Economic Data Continue To Weaken

The pattern of consensus expectation misses and deterioration in economic data continued today with the release of the Chicago Institute for Supply Management Purchasing Managers Index (PMI) for May. Consensus expectations were for the index to remain near unchanged at 56.1, but it dropped substantially for a second month in a row to 52.7.

The Chicago Purchasing Managers reported the May Chicago Business Barometer decreased for a third consecutive month to its lowest level since September 2009. The short term trend of the Chicago Business Barometer, and all seven Business Activity indexes, declined in May. Among the Business Activity measures, only the Supplier Delivery index expanded faster while Order Backlogs and Inventories contracted. Production and new orders are at their lowest levels since September 2009; prices paid is at its lowest level since September 2010; employment rate of growth slowed.



Separately, the Department of Labor reported that there were 383,000 initial unemployment claims last week, above consensus expectations for 370,000.

In the week ending May 26, the advance figure for seasonally adjusted initial claims was 383,000, an increase of 10,000 from the previous week's revised figure of 373,000. The 4-week moving average was 374,500, an increase of 3,750 from the previous week's revised average of 370,750.



Although it is too early to conclude that the rebound off of recent lows in April is the start of a new uptrend in unemployment claims, we have been expecting this turn higher and the data have been exhibiting bottoming behavior during the past three months. If a cyclical top is indeed developing in the stock market, we would expect the recent deterioration in economic data to accelerate in June.

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