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April 2013 ISM

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Same old, same old. This phrase may suggest things are boring, but when it comes to economic trends within the contemporary context—same old, same old is a very good state of events.

Today’s release of the Institute for Supply Management’s Purchasing Managers Index (PMI) for April confirms that the economic expansion continues to move forward at a decent albeit modest pace. Most importantly, the “guts” of the report suggest an absence of conditions that would threaten the longevity of the expansion.

The lifeblood for manufacturing–new orders–remain solid (yellow highlight in table). And inventories remain lean (“too low” was cited by many purchasing managers within the survey) and price pressures of many raw materials have eased. The signal content of the latter two variables (inventories and prices) is favorable for troublesome excesses and potential “pressure points” are mostly absent from manufacturing conditions.

In the ISM’s own words:

The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through April (52.3 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for April (50.7 percent) is annualized, it corresponds to a 2.7 percent increase in real GDP annually.

This backdrop, being driven by technology driven productivity gains, the revolution in domestic energy production, and the emergence of favorable U.S. demographics should continue to push general corporate earnings to further, additional new record ”highs”. Such fundamentals are favorable for stock prices and moves bond yields ever closer to the trend towards their “normalization” at higher yield levels.

May 1 (Bloomberg) — Following is a summary of U.S. manufacturing conditions from the Institute for Supply Management.

The Bloomberg median estimate from 84 economists was 50.5.

The revised breakeven point for the overall economy is a PMI of 42.2 percent. A PMI over 42.2 percent indicates an expanding overall economy.

A PMI below 42.2 percent indicates the overall economy is declining.