The first of 4 reports on leading economic indicators due this week is in, the ISM manufacturing report for July, and it is a strongly positive report.
Both leading components, new orders (at 55.3) and supplier deliveries (at 52.0), showed not just slowed contraction, but actually showed robust expansion. Prices (at 55.0) also firmed. (Readings over 50.0 on this report indicate expansion; under 50.0 indicate contraction.)
The overall index came in at 48.9, beating expectations, and while technically still showing ever-so-slight contraction, the ISM states:
A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the third consecutive month in the overall economy, and continuing contraction in the manufacturing sector
Continued readings even at July's level are consistent with future GDP growth in excess of the 2% necessary to create job expansion.
Under the circumstances, this is a very strongly positive report.
1 comment:
Bear in mind that job expansion has to outpace growth in the labor force before job expansion translates into falling unemployment.
If the PMI were to hold at 48.9, which on past experience (and "past returns are no guarantee of" ...) is projected to 2.4%, we need to know the pace of growth of gross labor productivity to tell whether that will be experienced as a "slow easing of unemployment" or as a "jobless recovery".
For example, with 0.4% productivity growth, and 2% of job-generating growth, with an Okun's Law ratio of 2% GDP : 1% employment growth, that would be 1% job growth, and probably some slow gains after the initial upsurge in labor force from discourage workers returning to the job search.
With 1.4% productivity growth, and 1% job-generating growth, for ~0.5% in employment gains, labor force growth would almost certainly swamp job growth, and unemployment would remain stuck, or even rise.
This is why we would like to see three months of indicators of 3%+ GDP growth before being confident that the first year of the recovery will see appreciable declines in labor unemployment.
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