This Slowdown Isn't Slow Enough

A look at tomorrow's NAPM data.
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Meatballs (or Are You Ready for the Summer?)

LOS ANGELES -- What to expect of the May


numbers to be released tomorrow?

One other national manufacturing index (a survey of the

American Production and Inventory Control Society

) and five regional ones (Philly, Cincy, New York, Milwaukee, Chicago) combined to post a half-point May decrease. History tells us to look for the father of them all (which clocked in at 54.9% at April) to come in about steady in cases like this. The five regional price components, meantime, combined to post a 12.9-point May increase, but most of it came from Junior's turf.

Market participants are tipped on both counts -- consensus has the PMI printing 55.5% and the prices component printing 75.0% (against 76.0% in April) -- so the first big economic release of the month seems most likely to prove decidedly ho-hum.

That will not, of course, prevent certain market segments from making a big deal out of it. A consensus May print, for example, will underscore the fact that the PMI is set to show deceleration for a second straight quarter, and that will surely set the slowdown types to singing.

And yet, as is always the case in cases like this, there's more to it than that.

First consider the inconsistency of the chorus. The very people who keep telling us that manufacturing has less to do with the economy than ever -- in this new (service-based and information-driven) era, widgets just don't much matter -- are the same ones who cite smaller factory-sector numbers as proof of economic slowing at large.

The moral there is that manufacturing matters only when it supports the story you're peddling.

Here one also wonders about memory. A significant and protracted decline in the PMI from a peak of 57.8% in July 1997 to a trough of 46.3% in December 1998, for example, had damn near everybody predicting for 1999 the same thing many folks are forecasting now: a significant economic slowdown.

Why is it that no one seems to remember that gross domestic product ended up growing at an even faster rate in 1999 than it did in 1998?

Then introduce some perspective. Yes, the PMI fell from a peak of 56.9% during the fourth quarter of last year to 56.3% during the first quarter of this year, and it will clock in lower again during the second. Yet keep in mind that this follows a one-year run-up; is a 2-point give-back in the wake of a 9-point ramp really the kind of thing you want to be betting big on?

Our man in Hartford

nails it yet again when he poses this most important question: a slowdown to what pace? To illustrate, even a PMI reading as "little" as 55% has historically been associated with GDP numbers north of 4%.

And that is most certainly not the kind of "slowdown" the Fed has in mind.