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Let’s get straight to the markets. I was on vacation all last week, so there’s a lot to get caught up on.
On the news front, there’s relatively little to discuss. Most of it is the usual stuff. You know: Apple blows out earnings, Europe sucks, Groupon sucks, etc. But there were a few items to note.
The ISM-PMI came in higher, but at 54.8, it’s hardly worth getting excited about. In the first half of last year, it was averaging around 60 and it got as low as 52 last fall. With the PMI, the absolute value of the reading is important, but so is the trend. The direction of movement hasn’t changed much all year; it’s just been holding steady.
Remember that readings above 50 signal growth in manufacturing and readings below signal contraction. So we’re expanding, but modestly.
This is one of my favorite economic data points because it’s eerily reliable at predicting recessions and slowdowns and there’s not a lot of hanky panky when it comes to how it’s calculated. If you were paying attention to the PMI back in the pre-crisis years, you saw it dip under 50 in December of 2007 and stay there through the first half of 2008. The beginning of the recession was officially dated in 12/07, the first month the index dipped under 50. If you used those indicators to get defensive with your investments, you saved yourself a lot of heartburn in 2008.
First quarter GDP basically confirmed what the ISM-PMI was signalling. Growth slowed down to 2.2% in the first quarter of this year, below what the majority of analysts was expecting. If you can believe it, 2.2% was actually above what I was expecting. I thought we’d see something under 2% as consumers retrenched and saved after leveraging back up a bit during the end of last year.
While I seem to have gotten the vector right, I was dead wrong on the magnitude. Way off. But who knows, had the winter been a more typical one and forced would-be consumers to stay inside and wrestle with higher heating bills, perhaps GDP would have clocked in under 2% and triggered some recession chatter. In this business, sometimes the most random things mean the difference between cawing like a peacock and having to issue a mea culpa. It’s yet another reason why I try to have fun with predictions and why you shouldn’t take them seriously either.