Sure, the Purchasers Look Manageable -- but Prices Keep Rising

A second look at the apparently soft PMI data.
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Smokestacking

JACKSON HOLE, Wyo. -- And the beat goes on.

The July

National Association of Purchasing Management

numbers released

today confirm that the manufacturing sector continues to recover from a beating that proved most painful late in 1998. About the year-to-date performance of its

Purchasing Managers Index

(or PMI) -- a weighted composite of the new orders (30%), production (25%), employment (20%), supplier deliveries (15%) and inventories (10%) indices -- the NAPM has this to say.

The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through July (53.5%) corresponds to a 3.5% increase in gross domestic product (or GDP).

Further, the table above shows that although the PMI will not turn in as robust a showing this year as it did during a super-strong 1997 --

industrial production

grew more that year (6%) than it did during any year of the current cycle -- it is on track to best the performances it delivered in 1996 (when IP grew 4.5%) and in 1998 (3.6%).

Two other notes.

Exports continue to grow.

The export index just posted its sixth consecutive expansionary (over 50%) reading following 14 straight contractionary ones. Note that net exports

subtracted more than 1 full percentage point from GDP last year and keep in mind that trade is unlikely to smother our growth rate that much again this year.

Prices continue to rise.

The price index just posted its seventh consecutive increase to land at its highest level (54.7%) since September 1997. Also, this index has tacked on 23.6 points since it bottomed seven months ago.

Recall that the

Fed

hiked the

funds rate

in March 1997, when NAPM prices rose 11.5 points in seven months to hit 55.6%, and that it also hiked in February 1994, when NAPM prices rose 14 points in five months to hit 63%.

Side Dish

Wanted to include the

Derby County Football Club

but there aren't enough slots.

And hey.

Terence Trent

is not an acceptable write-in.

Best derby?

Roller.

Soap-box.

Demolition.

The Brown.

The Kentucky.