JPMorgan Take on ISM

January 2nd, 2009 1:26 pm | by John Jansen |

The December ISM manufacturing survey was grim. The composite index
declined from 36.2 to 32.4, the lowest reading since June 1980, while
the new orders and production indices dropped to the lowest level since
the survey began in 1948. Most everything else was negative as well,
including employment, customer inventories, order backlogs, and export
orders. The one positive thing for manufacturers is that the price they
pay for inputs is falling rapidly, though this is something we generally
already knew from falling commodity prices. Overall this report was a
bad end to a bad quarter, and it gave no real sign of momentum going
into early 2009.· The new orders index declined to 22.7 from 27.9 and the production
index fell to 25.5 from 31.5. Order backlogs are also at the lowest
since this information began to be collected in 1993. At the same time
that orders are very low, the customer inventories index has hit its
highest level since February 1996, signaling that customer inventories
are too high. This suggests efforts to pare inventories could be a big
drag on GDP in the first half of 2009.

· The employment index slipped to 29.9 from 34.2 and is at its lowest
level since November 1982. We saw rapid manufacturing payroll declines
through November, and we will undoubtedly see more of this in next
Friday’s December employment report.

· The ISM manufacturing index had previously shown a complete collapse
in export orders, and things got worse in December. The new export
orders index fell from 41.0 to 35.5, the lowest since this series began
in 1988. Import volumes edged up only to 39.0 from a record low of 37.5.

· The prices paid index dropped to 18.0 from 25.5. It is the lowest
since June 1949, and the third lowest reading ever.

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  1. 10 Responses to “JPMorgan Take on ISM”

  2. By Tom O on Jan 2, 2009 | Reply

    Lat year this time is was the “Goldilocks” market, not too warm, not too cold, and everyone was happy until the Papa Bear came home and ate them alive. Now it’s the “Tinkerbell” market, where it’s dead, but everyone thinks that if they all clap together as hard as they can they can bring it back to life.

  3. By Dave in SV on Jan 2, 2009 | Reply

    Markets are up 2% to 3% so far today. Is the bad news priced in? Or are people too optimistic about a 2H recovery? (I’m only asking the questions because I’m not smart enought to know the answers.)

  4. By John Jansen on Jan 2, 2009 | Reply

    Tom O

    You have the best comment of the year so far with your clap as hard as they can line!!!

  5. By kmw on Jan 2, 2009 | Reply

    Dave, I’d put it like this: if you’re sitting in 10-year notes or long bonds right now, what exactly are you hoping for?

    I think the market is waking up to the fact that today’s yields make no sense. There will be a recovery (sometime) or there won’t. This begs for steepening. Consider the long bond: if we have 20 more years of ISM reports like today’s, exactly how is the Treasury going to repay you at maturity? No one will be making anything, so there won’t be anything to tax. The choices will be default or monetize, but you won’t care which because there won’t be anything to buy with the money anyway. Of course, you’ll probably be dead so it’s doubly moot. At the same time, no one can say whether a recovery will begin in 10 minutes or 10 years. All we know is that if there isn’t one under way by that time, there probably never will be. Ergo, steepening. And that’s exactly what you’re seeing the past two days.

  6. By Bond Girl on Jan 2, 2009 | Reply

    I think it is hard to draw meaningful conclusions from market movements around the holidays.

  7. By blec on Jan 2, 2009 | Reply

    Look at TBT (ProShares UltraShort Lehman 20+ Yr(ETF))…

    Up a lot the past two trading days.

    People trying to beat institutional rebalancing?

  8. By David on Jan 2, 2009 | Reply

    kmw,
    I agree. It doesn’t make much sense. If your concern is not losing your money, why not buy a shorter maturity. The only reason to buy a longer term bond is to lock in the great yield because you think it will go down further. How much further down can it go? Can’t people find some other bonds that yield higher like Johnson&Johnson 10-year. Is there really any risk in such things? Are people really that scared that they only trust the US government?

    Maybe the Fed and its buddies are manipulating Treasury yields lower to reinflate the economy. They have already threatened to do this but maybe the already are doing it. After all, if they want agency yields to go down, they need Treasuries to go down first. Otherwise there woul be the embarrassing problem of Treasuries yielding more than agencies. So they are setting up a housing bailout?

  9. By Dr.Dan on Jan 3, 2009 | Reply

    David,

    I think some MM funds lack out of the box thinking. They just stick some weird models which makes them keep a lump share in Tbills (even though CDS + common sense shows Johnson and Johnson is only as risky as the T bills – if not lesser)

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