Wikinvest Wire

There's always the second derivative

Monday, March 02, 2009

Things are apparently on the mend if you look at today's ISM manufacturing report in the context of the "second derivative" theory discussed in this WSJ Ahead of the Tape column($). IMAGE No, not really.

But that's about the best news you're likely to hear today.

The Institute for Supply Management reported that manufacturing contracted for the 13th straight month in February but, importantly, the nation's broadest measure of manufacturing activity indicated a slower pace of contraction than either of the last two months.

In an index where readings above 50 indicate expansion and below 50 indicate contraction, the December low of 32.8 was followed by a reading of 35.6 in January which was, in turn, followed by this morning's report of 35.8 during February.

Those looking to really stretch the truth might even say that the U.S. manufacturing sector improved by nine percent over the last two months.

No, that would just be stupid.

Here's what they had to say in the WSJ earlier today, before the ISM data was released.

The economy's green shoots have stopped growing.

A month ago, economists saw hints of revival in the "second derivative" of U.S. economic growth: Things were still getting bad, but at a slower pace.

One hint was the Institute for Supply Management's manufacturing index, which ticked up in January to 35.6 from a 28-year low in December of 32.9. Factories are of shrinking importance to the economy, but are still highly sensitive vanes of the prevailing weather. The ISM index's slight improvement fueled hopes of a bottom.
As it turns out, the ISM index was better than expected this morning, but manufacturing is still contracting at a faster rate than at almost any time in the last four decades.

Just wait 'til the numbers start climbing back toward 40 and then on to 50, the level that separates expansion from contraction.


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