Friday, July 30, 2010

Stat of the Day: Chicago PMI Backlog and New Orders Jump

As everybody frets over a soft patch in the US economy and the backward looking Q2 GDP report today, the Chicago PMI for July came in at a very robust 62.3. A full 6 points above the 56 consensus and even 4 points above the most optimistic economist at 58.4. The markets initially sold off based on the GDP report, but some sanity has returned after the Chicago PMI. Actually the market is still somewhat acting like a lunatic considering the GDP report should be meaningless and the Chicago PMI + earnings reports are so bullish that the market should be soaring today.

Why does the market even care about the GDP report? Do we now go back and adjust the terrific earnings reports of Intel (INTC), Caterpillar (CAT), or FedEx (FDX) because GDP was weak? Does it in any way impact guidance? The answer is a resounding NO! Besides, most of the SP500 doesn't even rely on the US for growth anymore.

Back to the Chicago PMI. New orders came in at a robust 64.6 with backlog jumping 7 points to 57.6. All signs of a market working itself out of a double patch. Have we ever worried about a double dip with a PMI this high?

The market is struggling for direction today, but the truth is undeniable. The forward looking data points to a bright path for corporate profits. Demand continues to outstrip employment. Very bullish indeed.


Highlights
Just when you think the economic tide has sunk, Chicago purchasers report wide, deep strength during July. The Chicago PMI rose to 62.3, a level right at the top of the recovery and indicating very strong, if not robust, month-to-month growth.

Growth is centered where it should be, in new orders which jumped 5-1/2 points to 64.6. Backlog orders shot up nearly seven points to 57.6. Plenty of orders means lots of production and even, perhaps, demand for new employees. The employment index rose nearly 2-1/2 points to 56.6, well above break-even 50 to indicate hiring in the month. Other details also show strength in a report that shows no weakness.

The only question is the report's sample size which is often small. The data aren't definitive but do point to strength for next week's national purchaser reports from the ISM.

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