Wednesday, September 7, 2011

Two Positive Indicators: PCEs and ISM

Despite all of the bad news lately (and there has been a ton of it), there have been two bright spots -- personal consumption expenditures and the latest ISM services number. PCEs comprise 70% of GDP growth, so they are an important data series.  Consider the following charts:

After stalling for the last four months (for the entire second quarter), real PCEs popped higher last month by .5%. 

There was a nice bump in durable goods -- largely due to an increase in auto sales

But non-durable goods are still mired in a tight range.   

Services, however, saw a nice bump as well.  Considering these comprise about 65% of PCEs, this is an important increase.

PCEs in the second quarter were stagnant -- as evidenced by the near level position they were in for the last four months.  However, at the beginning of the third quarter, there is a good bump.  Given the overall weakness we've seen in the other numbers (especially employment) this data series is in danger of being seriously weakened going forward -- that is, another round of stagnation much like the second quarter is a more than slight possibility.  But at least the third quarter GDP number has a nice jump coming out of the gate.

Today's ISM Services report was also good.
"The NMI registered 53.3 percent in August, 0.6 percentage point higher than the 52.7 percent registered in July, and indicating continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 0.5 percentage point to 55.6 percent, reflecting growth for the 25th consecutive month, but at a slower rate than in July. The New Orders Index increased by 1.1 percentage points to 52.8 percent. The Employment Index decreased 0.9 percentage point to 51.6 percent, indicating growth in employment for the 12th consecutive month, but at a slower rate than in July. The Prices Index increased 7.6 percentage points to 64.2 percent, indicating that prices increased at a faster rate in August when compared to July. According to the NMI, 10 non-manufacturing industries reported growth in August. Respondents' comments remain mixed. There is a degree of uncertainty concerning business conditions for the balance of the year."
The report also showed a majority of industries expanding verses contracting (10 were expanding;  were contracting).

There are plenty of reasons to be concerned right now: manufacturing is contracting, employment is in poor shape and Congress is a mess.  However, the two data points above represent wide swaths of the economy and their positive readings indicate all hope is not lost.