A PMI® in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI® indicates growth for the 61st consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 13th consecutive month. Holcomb stated, "The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through June (54.0 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI® for June (55.3 percent) is annualized, it corresponds to a 4.0 percent increase in real GDP annually."
THE LAST 12 MONTHS
Month | PMI® | Month | PMI® | |
---|---|---|---|---|
Jun 2014 | 55.3 | Dec 2013 | 56.5 | |
May 2014 | 55.4 | Nov 2013 | 57.0 | |
Apr 2014 | 54.9 | Oct 2013 | 56.6 | |
Mar 2014 | 53.7 | Sep 2013 | 56.0 | |
Feb 2014 | 53.2 | Aug 2013 | 56.3 | |
Jan 2014 | 51.3 | Jul 2013 | 54.9 |
The three quarters in the chart correspond to GDP of 4.1, 2.5, and -2.9. The numbers reported above say an index of 54, we get a 3.6% GDP, typically. This means, that absent any government or weather shocks or trade shocks, the manufacturing index correlates with consumer spending patterns and matches the aggregate GDP numbers. The actual GDP numbers corresponding to these three quarters were 4.1, 2.5, and -2.9; from July 2013 to Mar 2014.
So, we see both weather, Obamacare and other shocks effecting the typical relationship between PMI and GDP. After all, these are only manufacturing numbers, and they feed into consumer transactions which are 70% of the transactions. But we can see these PMI numbers count out changes of about 4 points over the year. Yet the changes in GDP count out -2.9 to 4.1. The difference, the final consumer deliveries, are all managed in inventory adjustments in the supply change.
So when analysts currently report a GDP outlook, they are reporting a very fickle variable called shocks to consumer behavior. The key variables are trade value of the dollar effecting imports and exports. And changes in government taxes and transactions costs. These are all difficult to measure and have large geographical variation. The current key consumer variable is the Obamacare transaction costs and their effect on job distribution. Main changes are the wage setting adjustments and part time work adjustments; are they done? No they are not. Retailers are very unsure, they do not see the feet in the stores. Part time workers change their spending habits. Large states, like New York and California are seeing dramatic changes in the insurance industry, and these have large effects on job turnover.
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