U.S. PMI Report: More Signs of Muddle Through

This morning’s PMI report showed mixed signs about the US economy.  The Markit US Manufacturing index came in at 51.9 which was down from 52.3 in May.  Markit referred to the current environment as a “modest expansion”:

“At 51.9, the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) signalled only a modest manufacturing expansion in June.

Having fallen from 52.3 in May, and dropping below the earlier flash estimate of 52.2, the PMI indicated
the slowest rate of growth since last October. The PMI averaged 52.1 in Q2 as a whole. This was down from 54.9 in Q1 and was the lowest reading since Q3 2012.”

Notable improvement came from output, new orders and quantity of purchases.  Notable decelaration came in employment and rising inventories.  The employment index is of particular interest for stock market participants since it shows that corporate America’s biggest cost isn’t on the rise.  This has been a good sign for stocks for years now as the slow, but expansionary economy has helped them grow them top line without having to boost employment costs which might lead to margin contraction.

All in all, it was just an okay report.  It likely doesn’t bode well for the employment report later this week, but I don’t know how much the stock market really cares about that so long as we’re seeing modest employment expansion and continued economic growth.

Chart via Orcam Investment Research:

Markit_PMI

 

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • SS

    I am surprised the market loves this report so much. It wasn’t all that good. Low expectations I guess.

  • Steve W

    Labor force participation rates, which have been below 64% since January 2012 (and were at about 66% from 2003 to 2008) don’t inspire much confidence. What is being called modest employment expansion seems pretty weak to me.

  • Andrew P

    There is a very good chart on ZH that puts the whole PMI recent history in perspective. They seem to be using a different data series source though, as their May 2013 PMI is 49.

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/07/PMI%20heatmap.jpg

  • http://orcamgroup.com Cullen Roche

    They’re using the ISM report which has had several false negatives in recent years….I’ve found the Markit report to be superior in terms of accuracy.

  • Andrew P

    Can you make a similar chart with the Markit series?