I was fiddling with some numbers today (what else is new?), and decided to further explore the relationship between ISM Manufacturing and Nonfarm Payrolls.
Here is what I found:
It would appear there is -- or has been until now -- a very high correlation between PMI Manufacturing (Blue, Left Hand Scale) and the Year-Over-Year Percentage change in Nonfarm Payrolls (Red, Right Hand Scale). That relationship has disintigrated in this cycle, as PMI turned up while employment continues to fall. This is a very troublesome chart. What it shows us, I think, is that the government can exercise some influence over production (e.g. Cash for Clunkers, homebuyer tax credit, both of which supported their respective industries), but it simply cannot exert sufficient influence over the labor market to make any meaningful difference. And, again, what happens as the life-support is removed?
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