ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown?

ISM Services printed its worst headline number since February of 2010 as the Employment series went sub-50, posting its largest MoM decline since November of 2008 and its first contractionary print in 25 months. 

 

ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - ISM Services Employment MoM Chg2

 

The dead cat bounce for New Orders off its worst print in more than 4 years in December continued as the series gained just +0.4 MoM in February - with a cumulative 2-month gain of just 1pt. 

 

Indeed, the rolling averages (3M/6M/TTM) in New Orders across both the Manufacturing and Non-Manufacturing survey’s continue to slow. 

 

ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - New Orders

 

On the positive side, Prices Paid slowed sequentially and the Backlogs index ticked above 50 for the first time in 4 –months.  Unsurprisingly, weather remained the ubiquitous caveat for both pundits and ISM survey respondents

 

ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - ISM respondent 

 

 

In the end, the takeaway is really just this:   

 

We’ve seen multi-decade/record MoM declines across a number if the sub-indices in the two ISM survey’s in recent months.  Yes, perhaps the weather is providing a modest-to-moderate negative distortion but, even if you discount that, the current Trend is one of deceleration.    

 

Overall, the ISM data remains in agreement with the preponderance of fundamental, domestic macro data which continue to reflect a slowdown from a second derivative perspective.  

 

ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - Eco Table 030514

 

HOW IS THE MARKET SCORING 1Q14:  Equity Indices are up but the market continues to provide a relative bid to slower-growth sector/assets (Bonds/Utilities/Gold).

 

Low Beta/Large Cap/Low Leverage Style factors continue to outperform and, with commodities and inflation hedge assets outperforming as well, investors (seemingly) continue to expect a rhetorical shift in policy out of the Fed in response to the fundamental deterioration.

 

More broadly, if the high-end is reigning in consumption (see Monday’s note:  Consumer Spending: High End in Retreat) alongside a slowdown in housing and portfolio appreciation and energy and commodity inflation continues to drive the deflator higher while taking a larger share of wallet for the bottom 80%, the upside for consumption growth in the immediate/intermediate term remains limited. 

 

ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - SFP

 

TAKING HIGH PROBABILITY SWINGS:  Will warmer weather bring a bounce in the reported data and, in reflexive fashion, drive confidence/hiring/etc higher, and a resurgence in pro-growth equity flows? 

 

Perhaps, but neither the fundamental data nor the price signals are supportive of that probability currently.  

 

We’ll change alongside the data, but until then we’ll continue to keep our gross and net domestic equity exposure tighter than we did over the Nov 2012 – Dec 2013 period, tilting that exposure towards slower growth sectors or those with positive leverage to inflation (vs. our focus on high beta, pro-growth, consumer leverage in 2013) while holding higher allocations to bonds and select commodities. 

 

Looking forward to more manic weather and labor force participation rate related commentary come Friday…..

 

ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - ISM NMFG

 

Christian B. Drake

c

@HedgeyeUSA


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more