Diffusion indexes have not matched reality for so long I struggle to remember when they did match hard data.
The latest non-manufacturing ISM and Markit PMI readings, out today, provide another example.
ISM Non-Manufacturing Report-On Business
The payroll report for May was a near-disaster but one would never know it from the ISM report. Actually, one would never know anything from the IMS reports, they have been so overoptimistic for so long.
Econoday Take on ISM
The Econoday take on the ISM report was amusing.
The ISM non-manufacturing index comes in just about as expected, at 56.9 vs Econoday’s consensus for 57.0. This is a very solid rate of growth that reflects strength in business activity (output), at 60.7, and new orders at 57.7. ISM’s sample reported noticeable strength in employment which however, at 57.8, contrasts with last week’s weak employment report for May. Backlogs are also unusually strong in the May report, at 57.0, which helps explain the month’s strength in hiring. The sample is building inventories in a sign of confidence with input costs, which had shown prior pressure, now flat. But this report is far from flat, continuing to point to rates of growth that the actual economy has failed to match.
- The ISM employment data does not match actual weak hiring in the BLS employment hard data.
- Nonetheless, strong backlogs explain the strong hiring (that did not really happen).
IHS Markit Services PMI
- New business grows at fastest pace since January
- Business activity continues to expand at solid rate
- Job creation accelerates to three-month high
Hiring Trends Accelerate
The trend of job creation, which began in March 2010, was extended in May. The rate of payroll expansion accelerated to a three-month high. Panelists commonly attributed the rise in staffing levels to new projects and higher overall business activity.
On the price front, the rate of input price inflation softened fractionally from April’s 21-month high. The pace of increase was broadly in line with the series average. Anecdotal evidence generally associated increased cost burdens to higher prices for goods purchased, as well as wage rises.
Chris Williamson, Markit Chief Business Economist, Comments
- “Although service-sector business activity picked up in May, the PMI surveys for manufacturing and services collectively indicate only a modest pace of economic growth so far in the second quarter.”
- “Historical comparisons with GDP indicate the PMI is signaling second quarter GDP growth of just over 2%, suggesting there may be some downside risks to IHS Markit’s current forecast of a GDP growth rebound to just over 3% in the second quarter.”
- “However, the key message from the PMI is that the economy is enjoying steady, albeit unspectacular, growth, and that the pace of expansion has been slowly lifting higher in recent months.”
- “Hiring meanwhile remains on a firm footing, with the survey’s employment indicators running at levels consistent with around 160,000 jobs added to the economy in May.”
- “In another sign of the economy’s underlying steady expansion, average prices charged for goods and services is running at the second highest in almost two years, indicating that rising demand is helping restore some pricing power.”
Williamson questions the validity of his own model’s GDP estimate. That a smart move given the anemic hard data reports all month.
Econoday on Markit Services PMI
The Econoday take on PMI Services also reflects on strong hiring.
Moderate is the message from the PMI services index which finishes May at a lower-than-expected 53.6, down 4 tenths from the mid-month flash but up a solid 1.1 points from final April and up 5 tenths from April’s flash. Most readings rose back to strength early in the year including new orders with backlog orders showing their first build since January. Employment is at a 3-month high with optimism on the general outlook, however, remaining subdued. There are badly needed signs of inflation in the report with input costs on the rise and selling prices also moving higher. This is a positive though far from robust report.
For more on the “robust” jobs creation thesis, please see Payrolls “Unexpectedly” Weak, Negative Revisions, Earning Poor: What Happened?
Mike “Mish” Shedlock
Our retail business has been completely dead for 4 months. Every distributor is begging for business.
Tony Bennett said:
“The sample is building inventories in a sign of confidence”
or just being wrong
Looking forward to some seriously discounted bargains in the next few years.
Could be a sign of pessimism also
Mathew Marty said:
Industrial production is strong in the markets we serve. Most of our customers are very busy and struggling to hire and train enough people to keep up with incoming orders
These are NOT consumer goods. These are business capital goods.
Its a low growth world. Upbeat today is different from upbeat in the 80s! Historic PMI surveys show labor and inventories peaking together. Are inventories too high? The economy however has so much new capacity which replace labor not too fulfill new demand. Price stability targets will need more juice from the fiscal side. The new hollowing out is not to China its to Google.
Here come the fictional retail/waitress/bartender/short-order cook jobs numbers, directly contradicting the retail & restaurant recession/reality.
Of course, nobody will mention or even notice this massive & obvious contradiction because superficial clickbait > actual analysis & conclusions.
Medex Man said:
Way too much debt in the system to stage a recovery, no matter who is in office.
Obamacare costs are growing 5-6 times faster than the revenue to pay for it — meaning other spending categories must be cut to make up the difference.
A little less than half the voters in the country believe Obama can give them a free lunch, and that Obamacare costs growing 30% compounded year after year won’t quickly dwarf GDP growth less then 5% per year.
Would you hire a college grad who can’t grasp that 30 is greater than 5??? Forget about advanced STEM courses, lets try to find some college kids that understand basic number systems. The country might have a large labor pool that attended college and took on massive student debts — but they didn’t learn any marketable skills. That poor education is showing in poor productivity numbers.
The nations savings pool has been decimated by an incompetent Fed — a Fed that thinks they can make the same mistakes as Japan but get a different outcome.
90% of the economic growth reported by Obama was debt and/or manipulated statistics. According to several research studies — the “birth / death model” created 90% of the jobs that the Obama regime claimed since 2008. 90% of “new” jobs were nothing but a statistical apparition.
Demographically speaking, the baby boomers are hoping to retire now — despite not saving anything for retirement. The millennial generation lacks basic work ethic, suffers from a failed education system, and they are buried in student debt for the time they wasted in college.
Spending computer time on facebook does not increase GDP the way spending time writing useful software would. Greenspan keeps asking why increased computer purchases does not translate into increased productivity — seems like the answer can be seen in the screen glow of facebook, snapchat, etc.
Too many college graduates complain that they have taken jobs (waitress, barrista, etc) that doesn’t require a college degree. But on the flip side, how many of them actually learned the basic skills that an employer can build on (assuming the employer wants to pay for training, which isn’t always the case)? Even if you find a “good” employer who will pay for training, if you don’t have the basic skills to start from — then your college graduation certificate is nothing but a piece of paper.
These problems were not created in four years — even though Obama made everything 10x worse with his ghetto policies. They won’t be fixed in four (or eight) years either — not by Trump or anyone else. Hopefully Trump can stop some of the bleeding caused by Obama’s endless fraud — but subsequent presidents will have to continue the rebuilding.
“According to several research studies”
Can you link to them please. I’d like to read them.
Thanks in advance.
Medex Man said:
Here’s one private study, but if you google for the phrase I am sure you can find the others
—> http://www.morningsidehill.com /the-us-jobs-market/
If I put that as a link, it goes into moderation… assume you can remove spaces, etc
Blue Joseph said:
Thank you for taking the time to post that Morningside Hill article. It’s very insightful. Much appreciated.
Medex Man said:
This study (for RAND corp) suggests that 94% of new jobs were “temporary”, but can’t figure out where those temp jobs actually are:
the US Govt. says the temp. jobs were retail, waitstaff & bartender jobs. totally believable & not at all suspicious. /sarc
Medex Man said:
Once again… inoccuous links get sent into moderation queue.
this is a RAND study, performed by Harvard / princeton weenies. Hopefully you can re-assemble the link:
krueger.princeton.edu/sites/default / files/akrueger/files / katz_krueger_cws_-_march_29_20165.pdf
Medex Man said:
OK… tried three times to include link to a RAND corp study done by Harvard and Princeton researchers. Its gets thrown into moderation.
First name on research is Alan Krueger (princeton) … you will have to google it since the link goes straight to moderation.
Krueger claims 94% of new jobs were temp jobs, but he and co-author can’t find where those jobs actually exist (because they were conjured by BLS’s birth death model)
Thanks – appreciated!
CzarChasm Reigns said:
I propose an alternative ending for Medex Man’s post:
“subsequent presidents will have to continue the fraud.”
and in this regard, I believe Trump to be qualified bigly.
I never take the economic info for granted, as a department head I,ve seen how they cook the books ,that was 25 years ago and it as not changed!
The U.S. and China have been the World’s economic engine for the past 5 years. Europe has been a basket case. But we have seen this pattern before – the Eurozone finally starts outgrowing the U.S. a couple of years before the U.S. crashes the World economy (2000, 2008). The Eurozone was slow to clean up after 2000 and 2008 and thus it took longer for their economies to build up steam. The $ is very strong at the moment, helping the E.U.
The next few years will be interesting. I think our economy will flatline or maybe drop below 0% growth, but there might just be enough demand from the U.S. to lend the E.U. a helping hand.
Oddly enough, 45 might help the E.U. If the U.S. economy doesn’t totally tank, but the clown show in the White House causes a lot of uncertainty, the markets might keep propping up the $ via treasury bond purchases giving the E.U. the runway needed to get back to some growth.
The demise of the U.K. economy will also help the E.U. as they can step in to replace the goods that the U.K. can’t sell due to the tariffs imposed on them.
Medex Man said:
Ha ha!! Typical. Europe thinks the US is going to bail them out.
News flash — the US is buried under Obama’s debt and Obama’s unsustainable cost structure. The adjustment (whether austerity or bankruptcy) is going to be painful — and it doesn’t matter who is in the white house.
You may have read the fiscal disaster that is Mish’s home state (Illinois), but there are several other US states that have been run into ruin by spendthrift governors. Each time, voters were told debt doesn’t matter (not by Cheney, these were local/state lies). Municipal bonds never default (which is false). They can always borrow more.
Well Illinois bonds are now essentially rated as junk bonds — like Greece. The rating agencies are slow to downgrade states, because of the political backlash that they get (Moody’s mysteriously got audited after questioning Uncle Sam’s books). But even Moody’s has a question mark on the debt of California, Wisconsin, New Jersey and Connecticut…. Connecticut recently had a story in both NYTimes (liberal) and WSJ (sort of conservative) … where the corrupt governor admitted he can’t keep raising taxes without destroying the state tax base.
Europe will not get a bailout from the US, because we can’t even if we wanted to.
I think they can kiss a bail out goodbye – you are right.
I was talking about just the GDP trends – it seems like every time the E.U. finally get their economy to recover from the last recession the next one hits. This lack of flexibility is their curse. The more short-term-pain oriented U.S. economy gets the bad news out of the way more quickly.
Hi monosynaptic. I enjoy reading your thoughtful posts. I continue to predict 1-2% US growth, and 2-3% world growth. Too much debt, poor demographics (in developed countries) and not enough productivity growth at the moment to spur anything more.
Do you agree with the simple formula:
GDP Growth = working population growth + productivity increase?
I use it, but find it a bit simple.
Workforce growth is rate of labor accrual by the economy and productivity is the rate of labor shedding by the economy. How about workforce growth MINUS productivity for the natural rate of inflation? R Star! Its pretty low….
I indeed agree with that formula. Yes, it over simplifies, but like a scientific formula, you can use it to explain what is happening to a large degree. It certainly explains why so many developed countries are in slow growth mode due to demographics and weak productivity growth (debt is the third major constraint).
Non-financial debt growth is what drives GDP growth. New cash flow is generated from credit markets not the economy. Fiscal drag in 2017 would be a growth killer.
JOLTS are at their highest ever.
You are correct Rob. 6.1 million unfilled jobs are indicative of a growing labour shortage.
Of course some areas in the US are experiencing larger labour shortages than others, but certainly, labour shortages are becoming more commonplace. This begs the question: how to solve the problem.
Higher wages, though they might help the company offering them, don’t help alleviate the problem much as it simply moves the available labour from one job to another. That leaves us with four options:
1. Train those who need the skills to get the available jobs (something that I am personally involved in). This is expensive, slow, and not always effective as some workers simply can’t learn the necessary skills. Still, it is part of the solution. It also raises the question of who should pay for the training. If you expect businesses to pay for training, then it may not happen as they would rather choose the easy route and simply steal workers from other businesses by offering higher wages.
2. Increase automation to replace labour. This is Japan’s approach. Again, this is expensive, slow, and only works in some areas. It is also a small part of the solution.
3. Import more skilled labour to satisfy the current need. More difficult with the current administration.
4. Export the jobs to other countries who have the available skilled labour. Not a very good solution, but one that some businesses are forced to pursue.
Which of these options do you favour? Which are you against? Which options are being pursued by your various levels of government, and by businesses?