More PMI Suspicion

It is easy to make jokes about the BEA’s new-found respect for “residual seasonality” that in the words of CNBC’s chief economist makes each Q1 appear to be a “different economy altogether”, but that doesn’t mean there isn’t something to it if in a far different manner than the mainstream would ever contemplate. There clearly is and has been for at least the past two or even three years a confusing set of circumstances that have repeated. Each year starts out very slowly only to seemingly rebound, but with each rebound being far more “transitory” than the actual weakness that preceded it. The result is almost a ratchet effect, where the media and economists over-emphasize each bounce that “somehow” leads only to the next bout of weakness at an even lower condition.

It started in 2014 during the Polar Vortex but really took shape last year after the sudden and dizzying drop in so many economic accounts; especially those related to manufacturing and the distribution of global goods. The Markit Manufacturing PMI ended 2014 on a major downswing, with the index having rebounded from the “cold” winter to start that year before jumping to nearly 58 by mid-year. It started 2015 at about 54 before again rebounding to almost 56 in February and March. Given that Fed Chair Janet Yellen declared all weakness, as oil prices and “inflation”, transitory, it was enough for everyone to suddenly see it that way, too; including Markit (from March 24, 2015):

Manufacturing new order levels increased at a robust and accelerated pace in March, driven by improving economic conditions and positive overall spending patterns among clients. The latest rise in incoming new work was the fastest for five months, but still less marked than the average for 2014 as a whole.

That one statement provided all that was necessary to figure the US economy, but the mainstream focused on the five-month high in orders while totally excluding how that high was suddenly lower than the prior year average. Chief Economist Chris Williamson remarked: