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Mix-Ansicht- Still Skeptical of ISM Report - leibovitz, 07.01.2003, 15:34
Still Skeptical of ISM Report
-->Still Skeptical of ISM Report
While some commentators were busy declaring a manufacturing recovery yesterday, we were paying attention to Norbert Ore, the man responsible for the ISM Manufacturing survey. He remains cautious, unwilling to pronounce that a recovery had taken hold, citing some potential seasonal adjustment problems. But there are other reasons to be skeptical of the report:
 The survey had the earmarks of inventory rebuilding. The inventories index posted its biggest monthly gain in nearly three years, while customer inventories were too low and were being drawn down at a faster rate. Similarly, a net of 9% of small businesses plan to increase inventories over the next 3-6 months, the most in three years (E0277).
 Except for New York, which posted modest improvement but has a relatively small manufacturing base, none of the other four regions that we track showed the sort of improvement seen in yesterday's report. Following the regional surveys has been very helpful for determining the direction of the national index. Furthermore, the regional Fed surveys for New York and Philadelphia only posted slight gains.
 The rise in the new orders index was the most since August 1980, when the economy was rebounding strongly from recession. Similarly, the rise in the PMI was the biggest since June 1991, also in the early stages of economic recovery.
Considering the bond market was and still is fundamentally overvalued (B0410) and had rallied even more in thin market conditions in the waning days of 2002, it was not surprising that the Treasury market sold-off sharply. Nevertheless, Treasurys held short-term support. On the tens, short-term support starts around 4-1/8% (B155). Better support can be found from 4.25% to 4.30%. And as steep as the sell-off appeared, it wasn't unusual. The Lehman Long-Term Treasury Bond Price Index lost 1.25% Thursday. A loss of at least that magnitude has occurred over 200 times since 1979, with no great implications for the future. The probability that the market will be lower in the coming weeks is 50-50. -- JK
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