FNY - PMI Often Cries Wolf
2024-06-08 03:20:00 ET
Summary
- Many consider the PMI a key economic indicator, but it is not.
- The PMI, currently below 50, reflects market pessimism.
- The pessimism appears to be easing, and the next couple of reports could bring us over 50.
Many consider the PMI a key economic indicator. It is not. It correlates with market psychology and market prices, not economics. The history from 1977 shows clearly that dips in the SP500 are highly correlated with PMI (Manufacturing) declines below the -50 benchmark level. But the PMI has declined below its benchmark roughly three times (3x) more than there have been actual recessions, which makes this more like the shepherd boy crying wolf when he feared one rather than seeing one. For comparison, the SP500 vs Household Employment shows that during an economic cycle, there are many times investors fear recessions for one reason or another, and they do not emerge. There are several Red Arrows in this chart to identify only a few of the periods fears rose without economic significance. To mark all these instances during upcycles that were head-fakes would make this chart unreadable....
PMI Often Cries Wolf