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By Jason Stipp and Robert Johnson, CFA | 09-04-2013 12:00 PM

Mixed Signals on Manufacturing

Strength in the ISM manufacturing report isn't confirmed by other data. Plus, where consumers are and aren't spending.

Note: Due to travels, Bob Johnson will not have a regular column this week. As a replacement, we filmed his take on some of this week's indicators on Wednesday, and you can get Bob's perspective on Friday's government employment here.

[recorded Wednesday, Sept. 4]

Jason Stipp: I'm Jason Stipp for Morningstar.

Bob Johnson, our director of economic analysis, will be out of the office later this week, but he is giving us an early peek at some of this week's data for his regular readers on Saturday. He is here to give his insights.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: Let's run through some of the data we got this week already. Let's start with ISM manufacturing data, which showed a nice increase.

Johnson: Manufacturing isn't a key driver of the economy here in the U.S., but it's good to see the data up, and we're at 55.7, which is up from something in the 54 range the month before. It's certainly a nice improvement in the PMI data, and the manufacturing economy seems to be doing pretty well. The new orders portion of that index was up at 63, which was a big jump and, in fact, drove almost the entire amount of the improvement in the data.

Stipp: But when you look at this data and you look at another set of data, something is not quite adding up here.

Johnson: I look at industrial production and durable goods orders, which should have some correlation with the ISM data. And darn it if the industrial production data for manufacturing and durable goods orders have just frankly been soft and lackluster, while the ISM data seems to be saying we're having a great economy.

I don't know what's happening--[maybe] the ISM is just such a leading indicator that we're going to see it turn up in the other datasets eventually, or if maybe the ISM data, which is a little bit more, "is it up, is it down, or is it the same?" It's not hard numbers. I'm wondering if [ISM data] is getting a little bit more like a sentiment indicator, where the purchasing managers that are filling out the forms aren't necessarily going back in the backroom and checking out each order and trying to formulate an answer, but [instead they are responding] more like, "I think it feels kind of good this week."

Stipp: So there is a little more subjectivity in how the ISM data gets aggregated, but the durable goods, which is more hard data, isn't quite as good as you would expect given what you are seeing in ISM.

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