Like China, manufacturers in the US report feeling better about manufacturing. Also like China, this is nothing new. The ISM Manufacturing PMI was estimated to have increased to 54.7 in December, up from 53.2 in November. That was the highest overall figure since December 2014. This is consistent with other sentiment surveys showing a noticeable increase in optimism since summer.
As you can see by the history of the index shown above, the PMI without any context is uninterpretable. Likewise, the overall value of 54.7 is meaningless, as are so many PMI values that do not signify the difference between expansion and contraction. For August 2014, for example, the ISM PMI surged to 58.1 from 55.6 that July. It did not suggest that manufacturing was expanding at a brisk pace, only that survey respondents felt that it might. Who could blame them? Every day there was more mainstream commentary about how great the economy was about to become.
When the ISM Non-manufacturing PMI fell in early 2014, however, I wrote:
When the ISM index is sky high, it is proof of the magic of monetary acumen. Now that the more-important non-manufacturing index has fallen to a 4-year low, confusion reigns as to interpretations. My interest in the ISM is as it has always been, a relative measure of changes (not absolute levels). Thus, more important to me is not that 4-year low, but the pace at which it has fallen.
It was consistent with the growing disruption of what was attributed to the Polar Vortex, but in reality was the uneven and inconsistent economy of what would shortly be revealed by the “rising dollar.” It didn’t matter that the PMI value had risen to 60 in the summer of 2013, it was the other more noticeable events from that summer that were ultimately far more important – and how they were shifting the economy’s balance already by the time the ISM figures picked it up. It wasn’t ever snow and winter:
Whatever the ultimate interpretation, or how this goes in the future, it is at least another indication that the economy continues to disobey the planned path. Some may want to wait for warmer weather to rule out snow-driven lunacy, but that really isn’t necessary given at least a cursory scan of the state of the economy, from income to capex to global trade. With all these “headwinds” it’s pretty much standard from an unbiased perspective.
What we find in the context of the post-Great “Recession” period are these almost bipolar swings in emotion. The shift in sentiment is always tied to monetary events, which is about the only important piece of information from PMI’s. When they fall, it is confirmation that real economic agents are finally looking past all the mainstream promises and rhetoric for recovery to become more attuned to current circumstances; when they rise, it is because a pause in the monetary degradation allows participants to once more think about a better future but mistakenly under the binary orthodox model.
The role of “stimulus” in each of these “reflation” upswings is obvious, with each iteration being claimed significantly different from the last; only to find out in the end none of it was the needed solution.
Like the ISM, the Chicago Business Barometer (which is a regional product of the ISM) has been on the upswing this year, though far more volatile than “usual” in how it has gone about it. That index registered 57.6 for November 2016, the highest since January 2015, only to fall 3 points to 54.6 in December. Is the 54.6 for the latest month any different than the 54.7 in July 2015, or 54.1 in August 2012?
The answer is clearly “yes”, meaning there is no meaning in any particular PMI number. As I wrote earlier today, the dreadful economy hasn’t changed but there are times when “we” feel much better about it. I would only add that in these times those who are more positive aren’t truly sure why, though optimism has been the dominant setting in the mainstream all throughout.