Tuesday, February 4, 2014

Perplexing PMI (excerpt)

During the current bull market, the first trading day has tended to be one of the best of the month, mostly on better-than-expected M-PMI news for the US. These data are released during the first business day of each month. Yesterday’s report was unexpectedly weak, with the overall index plunging from 56.5 during December to 51.3 last month, led by even bigger dives in the production index (from 61.7 to 54.8) and the new orders index (from 64.4 to 51.2).

The chairman of the Institute for Supply Management, which conducts the survey, blamed the weather for some of the weakness in the results. The eastern half of the US is experiencing one of its 10 coldest winters on record, with thousands of local records for cold already tied or broken. So the M-PMI hit an ice patch rather than a soft patch.

I’m not sure that makes sense. Why would orders be down so much just because the weather was bad? More perplexing is that the average of six regional business surveys showed solid gains last month, although they too were mostly hit by the bad weather. Furthermore, Markit reported yesterday that its final M-PMI for the US dipped from 55.0 during December to 53.7 last month. No big deal.

Today's Morning Briefing: Soft Patch or Ice Patch? (1) New month, old worries. (2) Chill now, thaw later. (3) Plunge in national M-PMI doesn’t jibe with regional surveys. (4) Markit’s M-PMI showing life. (5) Lots of upbeat M-PMIs around the world. (6) Eurozone factory index at 32-month high. (7) Our FSMI is at 1700, around key support for S&P 500. (8) P/E correction. (9) Guidance and headlines depressing Q1 earnings estimates. (10) Focus on market-weight-rated S&P 500 auto-related industries. (More for subscribers.)

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