by Dave Kranzler, Investment Research Dynamics:
The Conference Board’s Consumer Confidence for November is 102; 101 was expected. However, the big story is that October was revised to 99.1 from 102.6! The November Present Situation is 138.2. October was revised to 138.6 from 143.1. The November Expectations is 77.8; October was revised to 72.7 from 75.6. Why did Conference Board statisticians botch October metrics so badly? Why have there been so many downward revisions to US economic data? Qui bono? – The King Report, November 29, 2023
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The following commentary is the opening salvo of my December 3rd Short Seller’s Journal newsletter. Follow this link to learn more about SSJ: Short Seller’s Journal info
Many of the Government and some non/quasi-Government association economic reports are being released with suspiciously bullish data only to be revised lower in subsequent months. But the revisions are buried in the reports and never make the headlines. The Conference Board’s Consumer Confidence survey is one of the examples just from this week. Typically parallel data from the private sector do not corroborate the data from these reports.
The Chicago PMI on Thursday morning, released by the Chicago Institute of Supply Management, spiked up to an index level of 55.8 from 44 in October and vs 45.4 expected by Wall Street. The report triggered a 1.47% manic rally in the Dow, though the SPX closed up 0.38% and the Nasdaq was red. The big jump in “measured” economic activity was one of the biggest “beats” in the history of the index, with a 13-sigma beat (i.e. the probability that the reported result is the actual result is near-zero).
I think the explanation for the unexpected spike in the Chicago PMI data is attributable to the fact that auto labor union strike was resolved in November. The Chicago Fed region hosts a large number of automotive OEM parts suppliers and many other businesses related to the manufacturing of automobiles. All of the sub-index components of the Chicago PMI, in my opinion, reflect the surge in orders, shipments and other economic activity related to the post labor settlement ramp-up of automotive manufacturing.
The Chicago PMI likely does not have a methodology to adjust, or “smooth out,” the data points connected to the post-strike ramp-up in automobile production. Thus, I am confident that this particular economic report does not support the “recession avoided” narrative promoted by the Biden people, the Fed and Wall Street. In fact, a day later S&P Global reported its Manufacturing PMI and it showed a decline to 49.4 from 50 in October, driven by a decline in new orders and employment. A reading below 50 indicates contraction in business activity.
Speaking of the Fed, the Fed’s Beige Book for November said the economy continued to show a slowdown in activity from the October report. The October report basically said that economic activity stagnated. The point here is that the Chicago PMI in all probability does not at all reflect economic reality. This is particularly true given that the other major Fed regional bank economic indices, as well as the leading indicators, point to a continued contraction in economic activity.
The ISM Manufacturing PMI for November was reported at 46.7, unchanged from October, but was expected to improve to 47.6 by Wall Street. All sub-indices contributed negatively (new orders, production, employment, inventories and supplier deliveries). However, contrary to the Chicago PMI which said that prices paid moderated, the ISM prices paid jumped higher. Some of the respondents to the survey described their business sector (fabricated metal products, chemicals) as in recession.
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