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When Up Or Down Might Not Matter

This is a syndicated repost published with the permission of Alhambra Investments. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Many surveys of especially manufacturer sentiment were for most of the past few years highly volatile in their month-to-month changes. It wasn’t at all unusual for the Chicago Business Barometer, for example, to be up big one month and then down just as much if not more the next. What was important was not those individual swings but that these indicators were having a hard time describing what was going on. That may have been an artifact of PMI’s in their construction and tabulation processes, or it may have reflected the possible indecisiveness of survey respondents.

For two years now, the ISM Chicago Business Barometer has not failed to disappoint. Whether you were bullish or bearish on the manufacturing sector, if you were frustrated by the index one month you needed only wait to the next, maybe two, to be turned around. The index value for October 2015 was 56.2, for example, but 48.7 the month after and 42.9 the month after that. Then in January 2016, the index spiked back to 55.6 as if nothing had ever happened.

Today was a little more unusual in that the volatility all occurred under the same release. At 9:45am at the usual release time ISM reported that its PMI index for the Chicago area had fallen to a four-month low, down to 55.2 from 57.0 in April. At 11:21am, however, the ISM issued a correction stating that, no, the Chicago Business Barometer was up to 59.4, the highest in two and a half years. No explanation has been given for the correction.

What is truly weird about the whole episode is that, as ZeroHedge reported, the ISM actually created a full press release including commentary on all the details of the apparently wrong index value. It seemed to be perfectly natural that it might behave this way in either direction. The original said:

After rising for three consecutive months, demand lost ground in May. New orders fell by a hefty 9.6 points to hit the lowest level since January. In line with lower orders, Production also receded, although by a softer margin.

The corrected release now says instead:

After rising for three consecutive months, demand lost ground in May. New orders fell by 4.5 points to 61.4 in May. In contrast, Production continued to strengthen.

Though it might be tempting to stir up conspiracies, I think it more so a sign of the times. It is not the first time such mistakes have happened, usually they are nothing more than an information provider using the unadjusted figures rather than the seasonally-adjusted ones. The Chicago PMI may not be the most followed economic indicator, but it is not all that obscure, either.

Like the difference between consumer sentiment and the lack of spending, certainly the continued absence of income growth, the ISM’s embarrassing morning is just that consistent. So we are left with volatility in the index that even if nothing more than correction reflects the state of the US economy. This year is better than last year, but unlike at similar points in all past history nobody really seems to know what that might mean.

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