The View from the Nation's Purchasing Managers
The Institute for Supply Management (ISM) reports its Purchasing Managers Index (PMI) on a monthly basis. The ISM surveys over 300 manufacturing firms on production activity, new orders, employment, supplier deliveries and inventory. The Institute for Supply Management reported that manufacturing activity expanded for the 12th consecutive month in July. However, the rate of expansion again slowed, and New Order activity was especially foreboding. The view from the nation's purchasing managers might be a delirious one, because the state of manufacturing appears to us to be stagnating towards stinky.
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Wake Up Wall Street! Manufacturing is Stagnating Towards Stinky!
ISM's PMI Report showed its manufacturing index slipped to 55.5%, from June's mark of 56.2. While a reading above 50 signifies economic expansion, the month's data continued a three-period trend of decrease in the index from April's high of 60.4. Even more troubling, the New Orders Index fell five full points to 53.5%, to depths not seen since the economy first exited recession at this time last year. Deep within the data, we discover that some 27% of those surveyed say New Orders were better in July, where 53% say they were unchanged and 20% say they were worse. What you might miss is that in June, only 14% said orders were worse. Can you say "double-dip recession" Wall Street? Soon the evidence will be so clear that side-street directors of research (Water Street specifically) who are paid to generate investment interest (rape the public) will not even be able to deny it.
Good news though, at least for another month the biased independent guys can keep publishing their marketing materials (err research reports) for chumps like us to munch up. You see the ISM report also somehow implies the economy expanded for a 15th consecutive month this July. ISM notes also that 10 of 18 industries reported "demand is still quite strong." Wait a second, that means 8 industries disagree, and hold on now, that's almost half of those responding to the survey. Wow, we almost missed that didn't we...
The lucky 10 include Plastics & Rubber Products; Miscellaneous Manufacturing; Paper Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Primary Metals; Textile Mills; Computer & Electronic Products; Fabricated Metal Products; and Chemical Products. The not so lucky four industries reporting contraction in July are: Nonmetallic Mineral Products; Furniture & Related Products; Food, Beverage & Tobacco Products (you can't even afford beer anymore); and Machinery.
Besides the headline PMI and the New Orders Indexes already discussed above, we found the 4.4 point drop in Production interesting. Gee, that might be important huh.. The Production Index slipped to 57.0, still representing growth mind you, but can you see the writing on the wall? It reads, "Economy Reenters Recession," and it could be published before the end of the year.
Guess what, employment improved within the manufacturing sector. Well, for those of you who did not know, it has been improving for a good while now. Yeah, it started improving once GM, Chrysler and scores of auto suppliers shut down plants and fired a few tens of thousands extra workers. Yep, that's when things really got hot! And once the government got the UAW to agree to deep cutbacks in benefits, pensions and pay, and to take on a good junk (I mean chunk) of ownership in the automakers, everything started getting better. Of course, we exclude the beloved and nearly as untouchable as Goldman (NYSE: GS) Ford (NYSE: F) from this group.
To be clear though, the government's actions were necessary, or US industry in general was going to disappear. Don't you remember the intense testimonies of reps. Paulson and Bernanke? Unfortunately, we hear American auto workers are seeking jobs in India and Mexico now for better benefits. I do recall though that some of those guys were making as much as an accountant at a good firm can make in NYC, so maybe they deserved it then? Cause accountants are grossly overpaid, at least when compared to acclaimed and accomplished writers (said with protruding chest and a glance begging your attention).
My auto industry pals in Detroit tell me that comparison to Toyota (NYSE: TM) pay scale is simply unfair! They say (or at least my cousin does), at a decibel too high (not due to anger, but to some strange internal volume misalignment), Toyota can afford to pay less, since it gets all kinds of unfair support from Japan that help it make up the margin difference. Hey guys, I got one word for you that you're gonna like: karma. Toyota (NYSE: TM) has its own issues now... and the pendulum swings...
Back to Point! I want Iverson back in Philly.
Back to Point Point!
Manufacturing activity is decelerating. Allow me to explain: Decelerating is not braking, but a slowing in the pace of forward movement. We might say that momentum is fading in the manufacturing space, and we might even scribble that inventory restocking is complete and disparate demand is dissipated. We are left with nothing but the scraps of an economy gone bad now folks. Get used to it, and by it I mean stagnation. It stinks, it's greenish/brown, and it just sits there.
While the Employment Index inched higher, other signs, and we expect the Employment Report will also offer evidence of this, show manufacturing is settling. Exports are your only hope now, so place your bets on China and close your eyes if you're an off-Wall Street strategist catching heat to stay bullish. God help ya!
See Also: Sole Solid Sector Stinks!
Monday's corporate news highlighted earnings reports from Allergan (NYSE: AGN), Humana (NYSE: HUM), NRG Energy (NYSE: NRG), Loews (NYSE: L), The Principal Financial Group (NYSE: PFG) and Vulcan Materials (NYSE: VMC). Also look for reports from Actuate (Nasdaq: ACTU), Administaff (NYSE: ASF), Alexander's (NYSE: ALX), AllianceBernstein (NYSE: AB), Altra Holdings (Nasdaq: AIMC), American Financial Group (NYSE: AFG), American Physicians Service (Nasdaq: AMPH), Argo Group Int'l (Nasdaq: AGII), Atlas Pipeline (NYSE: AHD), Atlas Pipeline Partners (NYSE: APL), Barnes Group (NYSE: B), BioMarin Pharmaceutical (Nasdaq: BMRN), Brookdale Senior Living (NYSE: BKD), Carmike Cinemas (Nasdaq: CKEC), Celadon (NYSE: CGI), Charles River Labs (NYSE: CRL), CIRCOR Int'l (NYSE: CIR), CNA Financial (NYSE: CNA), Cognex (Nasdaq: CGNX), Comfort Systems (NYSE: FIX), Comstock Resources (NYSE: CRK), Corporate Executive Board (Nasdaq: EXBD), Cutera (Nasdaq: CUTR), DaVita (NYSE: DVA), Developers Diversified Realty (NYSE: DDR), Drew Industries (NYSE: DW), Ducommun (NYSE: DCO), Encore Capital (Nasdaq: ECPG), EnergySolutions (NYSE: ES), Evergreen Solar (Nasdaq: ESLR), Expeditors Int'l (Nasdaq: EXPD), Extreme Networks (Nasdaq: EXTR), First Industrial Realty (NYSE: FR), First Mercury Financial (NYSE: FMR), Flagstone Reinsurance (NYSE: FSR), Forest Oil (NYSE: FST), Franklin Electric (Nasdaq: FELE), General Cable (NYSE: BGC), GFI Group (Nasdaq: GFIG), Gladstone Investment (Nasdaq: GAIN), Gramercy Capital (NYSE: GKK), Granite Construction (NYSE: GVA), Greenlight Capital Re (Nasdaq: GLRE), Griffon (NYSE: GFF), Guidance Software (Nasdaq: GUID), Haemonetics (NYSE: HAE), Healthsouth (NYSE: HLS), Henry Schein (Nasdaq: HSIC), Herbalife (NYSE: HLF), Heritage Financial (Nasdaq: HFWA), HFF Inc. (NYSE: HF), Hologic (Nasdaq: HOLX), HSBC Finance (NYSE: HTB), HSBC Holdings (NYSE: HBC), Information Services (Nasdaq: III), Infospace (Nasdaq: INSP), Integral Systems (Nasdaq: ISYS), Intevac (Nasdaq: IVAC), Investors Title (Nasdaq: ITIC), Kaiser Aluminum (Nasdaq: KALU), Kilroy Realty (NYSE: KRC), Kubota (NYSE: KUB), LifePoint Hospitals (Nasdaq: LPNT), LTC Properties (NYSE: LTC), Lydall (NYSE: LDL), Magic Software (Nasdaq: MGIC), MannKind (Nasdaq: MNKD), Meadowbrook Insurance (NYSE: MIG), Mercury General (NYSE: MCY), Micronetics Wireless (Nasdaq: NOIZ), Momenta Pharma (Nasdaq: MNTA), MSB Financial (Nasdaq: MSBF), Nam Tai Electronics (NYSE: NTE), Nationwide Health Properties (NYSE: NHP), Navarre (Nasdaq: NAVR), NuStar Energy (NYSE: NS), NV Energy (NYSE: NVE), Oplink Communications (Nasdaq: OPLK), Orbotech (Nasdaq: ORBK), Oshkosh (NYSE: OSK), Parkway Properties (NYSE: PKY), Patrick Industries (Nasdaq: PATK), Peapack-Gladstone Fin'l (Nasdaq: PGC), Phoenix Technologies (Nasdaq: PTEC), PolyOne (NYSE: POL), Post Properties (NYSE: PPS), Power Integrations (Nasdaq: POWI), Powerwave Technologies (Nasdaq: PWAV), PS Business Parks (NYSE: PSB), RealD Inc. (NYSE: RLD), Regal Beloit (NYSE: RBC), Resource Capital (NYSE: RSO), Rogers Corp. (NYSE: ROG), Rudolph Technologies (Nasdaq: RTEC), Santarus (Nasdaq: SNTS), Sappi (NYSE: SPP), SBA Communications (Nasdaq: SBAC), Senior Housing Properties Trust (NYSE: SNH), SM Energy (NYSE: SM), Standard Motor (NYSE: SMP), Stereotaxis (Nasdaq: STXS), Summer Infant (Nasdaq: SUMR), SuperGen (Nasdaq: SUPG), Sykes Enterprises (Nasdaq: SYKE), Synchronoss (Nasdaq: SNCR), Syniverse (NYSE: SVR), Tasty Baking (Nasdaq: TSTY), Technitrol (NYSE: TNL), Texas Roadhouse (Nasdaq: TXRH), TGC Industries (Nasdaq: TGE), TIM Participacoes (NYSE: TSU), TNS (NYSE: TNS), Tri-Valley (AMEX: TIV), US Auto Parts (Nasdaq: PRTS), UDR (NYSE: UDR), Unica (Nasdaq: UNCA), Valeant Pharmaceuticals (NYSE: VRX), Vanguard Natural Resources (NYSE: VNR), VeriSign (Nasdaq: VRSN), Virtus Investment (Nasdaq: VRTS), Vivus (Nasdaq: VVIS), Wright Medical (Nasdaq: WMGI) and WuXi Pharmatech (NYSE: WX).
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