Implications: The ISM manufacturing index, which measures factory sentiment around the country, declined in January, but remained above 50 for the 20th consecutive month. Of the eighteen manufacturing industries surveyed each month, fourteen reported growth in January, while only two reported contraction. West coast port strikes caused a slowdown in supplier deliveries and pushed inventories higher in January, but labor talks at the end of last month suggest the strikes are nearly over and business should return to normal in the months ahead. We don't believe the decline in the ISM index from 57.9 in October to the current reading of 53.5 is anything to worry about. Normal fundamentals have not changed in any significant way and we consider this normal volatility. According to the Institute for Supply Management, an overall index level of 53.5 is consistent with real GDP growth of 3.3% annually. This ISM-calculated relationship has over-estimated real GDP growth in the past several years, although mid-2014 real growth came close. As a result, we see today's data as consistent with our early forecast of a roughly 2% real GDP growth rate in Q1. On the inflation front, the prices paid index fell to 35.0 in January, the lowest level since April 2009. No surprise here...prices are driven lower every time oil prices fall. Although we still think inflation will move higher in the next couple of years, it's going to be a long slog upward. The employment index dipped in January to 54.1, slightly below the 54.5 average seen in 2014. So we see continued solid employment growth in early 2015. In other news this morning, construction spending increased 0.4% in December (0.7% including revisions to prior months). The gain in December was due to single-family homes, bridges, and public power plants, which offset a decline in commercial construction. Factoring-in these figures, it now looks like real GDP grew at a 2.8% annual rate in Q4 versus last week's report of 2.6%.
Click here for PDF
|
|
Posted on Monday, February 2, 2015 @ 1:08 PM
|