Hi folks, welcome back. I hope you had a wonderful holiday. We will soon be gearing up for our Capital Markets Contest and our MoneyWiseTeen contest. Please let Bernard know if you are interested in either or both. I will send info about both shortly.
Jim
A Purchasing Managers’ Index (PMI) of over 50% means expansion in manufacturing. This is a good sign. From our Teacher Guide to the California Economics Standards.
The Purchasing Managers’ Index
The very first indicator of economic conditions (because it is released on the first business day of the month) is the Purchasing Managers’ Index, calculated and announced by the Institute for Supply Management. Because it is the first glance that analysts have of the manufacturing sector, it is closely watched. Twenty industries are represented in the survey. The questionnaire includes questions on new orders, production, vendor deliveries, employment, inventories, imports, and commodity prices. Participants are asked whether these are higher, lower, or the same as last month. An index is then developed that is seasonally adjusted. In general, a PMI below 50 signifies that the manufacturing sector is shrinking and an index above 50 indicates that it is growing. An index of 40 or below suggests recession and worries analysts, while 60 or above suggest strong inflationary pressure and threatens higher interest rate pressure by the Federal Reserve.
From the Wall Street Journal
The global economic recovery is gaining traction, as manufacturing cranks up around the world.
A jump in new orders spurred U.S. factories to step up production, with manufacturing expanding in December at its fastest pace in more than three years, according to a survey of U.S. purchasing managers released Monday. Similar reports in Asia and Europe also showed the pace of expansion quickened last month.
The mounting evidence of a global manufacturing rebound gave world stock markets a boost on the first trading day of the new year. The Dow Jones Industrial Average rose 155.91 points, or 1.5%, to 10583.96.
"It's looking very good and not just in the U.S.," said Zach Pandl, an economist with Nomura Securities in New York. "The economy has a lot of momentum right now -- it's a good sign that we're turning a corner."
The Institute for Supply Management reported Monday that its purchasing managers index rose to 55.9 in December, the highest level since April 2006. Numbers greater than 50 indicate expansion in the U.S. manufacturing economy.
The report suggested the economy is growing quickly enough to avoid slipping into a double-dip recession: In the early 1980s, for example, the economy slipped back into recession after a brief recovery.
Monday's U.S. manufacturers report said the index of new orders rose to its highest level in five years, and an increase in its employment index showed manufacturers were hiring back workers to meet rising demand.
Manufacturing's share of the U.S. economy is much smaller than it was in the 1980s. But it remains an important bellwether, highly sensitive to changes in the economy. Many nonmanufacturing businesses -- from car dealers to long-haul truckers -- rely on its good health to survive.
"The odds of a double dip have gone from one-in-three to one-in-five," said Don Ratajczak, a consulting economist with Morgan Keegan.
The risk, however, remains. Big question marks hang over the U.S. economy, prompted by high levels of household debt and a still-stagnant housing market. Although U.S. manufacturing appears to be growing, activity is still down sharply from what it was before the recession. In November, according to the Federal Reserve, manufacturing production was 13.3% below its December 2007 level.
The strength of the U.S. economy will be tested when federal stimulus funds, homebuyer tax credits and other government supports end.
Industrial giant
General Electric Co. in Fairfield, Conn., recently announced several big orders and partnerships in such businesses as avionics, wind turbines and power turbines. But it had said it was still planning layoffs by the end of 2009.
Associated Press
Kim Robinson puts labels on Playaway self-contained, battery-powered audio player books in December at the Findaway World headquarters in Solon, Ohio. Manufacturing activity grew in December at the fastest pace in more than three years.
"Unfortunately, construction-equipment manufacturing continues to be depressed. We have not seen an uptick," said Mike Bazinet, a spokesman for
Terex Corp., which makes cranes and other heavy equipment and is based in Westport, Conn.
Mr. Bazinet said Terex continued to reduce locations and employees in the fourth quarter. While stimulus money was available, he said, "many states cut back on their construction funding. This makes it very hard for contractors to bid the work. Even if they are getting jobs, they tended to be shorter-term paving and shovel-ready projects."
The Labor Department will release the December jobs report on Friday, and economists will be looking for clues of when the U.S. will generate new jobs again. Economists polled by Dow Jones Newswires estimated 10,000 jobs were lost last month, which would be the fewest in two years.
But with a growing U.S. population, most economists estimate it will take employment growth of at least 100,000 jobs a month to bring down the unemployment rate, which stood at 10% in November.
The weak job market is still hampering the willingness of consumers to spend. In the U.S. economy, consumer purchases represent about two-thirds of total demand, and spending by Americans remains an important engine of economic growth around the world.
"Our customer base, they all seem to think that things are coming back," said Robert Mosey, owner of Moseys' Production Machinists in Anaheim, Calif. The company makes components for aerospace, laser, medical-technology and oil-drilling-equipment manufacturers. "Everyone's attitude is 2009 is past us now, we can look ahead and do business. It won't jump back up to 2008 levels, but we should start seeing some movement."
In Asia, where countries in large part weathered the downturn better than their Western counterparts, manufacturing is heating up inflation concerns.
The HSBC purchasing managers' index for India hit its highest level since May, and for China rose to the highest level in 20 months. The reports Monday came as Asian countries considered dialing back fiscal-stimulus efforts and easy monetary policies adopted during the crisis.
Australia's central bank was among the first to raise its key policy rate, and market watchers were waiting to see whether such recovering nations as India and South Korea would follow suit.
Purchasing managers' indexes for Germany, Italy and France also rose. In Britain, the manufacturing sector expanded at its fastest pace in more than two years, indicating the U.K. economy may have emerged from recession in the fourth quarter.
The positive economic data was a sharp contrast to the mood among economists at the annual conference of the American Economic Association in Atlanta. Many were subdued in their outlook for 2010.
"Strategic default on mortgages will grow substantially over the next year, among prime borrowers, and become identified as a serious problem," said Robert Shiller, an economist at Yale University. "It will grow because of a building backlash against the financial sector, growing populist rhetoric, declining sense of community with the business world. Some people will take another look at their mortgage contract, and note that nowhere did they swear on the Bible that they would repay."
—Paul Glader and Michael A. Arnold contributed to this article.
