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Wednesday, August 01, 2012 12:00 PM

Dismal Manufacturing Numbers Worldwide; US ISM in Contraction Second Month; Why Another Round of QE is Pointless

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Inquiring minds are looking into the July 2012 Manufacturing ISM Report On Business®

"The PMI registered 49.8 percent, an increase of 0.1 percentage point from June's reading of 49.7 percent, indicating contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion. The New Orders Index registered 48 percent, an increase of 0.2 percentage point from June and indicating contraction in new orders for the second consecutive month, but at a slightly slower rate. Both the Production Index and the Employment Index remained in growth territory, registering 51.3 percent and 52 percent, respectively. The Prices Index for raw materials registered 39.5 percent, an increase of 2.5 percentage points from the June reading of 37 percent, indicating lower prices on average for the third consecutive month.
JULY 2012



PMI 49.8 49.7 +0.1 Contracting Slower 2
New Orders 48.0 47.8 +0.2 Contracting Slower 2
Production 51.3 51.0 +0.3 Growing Faster 38
Employment 52.0 56.6 -4.6 Growing Slower 34
Supplier Deliveries 48.7 48.9 -0.2 Faster Faster 6
Inventories 49.0 44.0 +5.0 Contracting Slower 4
Customers' Inventories 49.5 48.5 +1.0 Too Low Slower 8
Prices 39.5 37.0 +2.5 Decreasing Slower 3
Backlog of Orders 43.0 44.5 -1.5 Contracting Faster 4
Exports 46.5 47.5 -1.0 Contracting Faster 2
Imports 50.5 53.5 -3.0 Growing Slower 8
OVERALL ECONOMY Growing Faster 38
Manufacturing Sector Contracting Slower 2

Dismal Manufacturing Numbers Worldwide

Reuters reports Global factories struggle as growth fears rise
U.S. and euro zone factory activity slumped again in July while Chinese manufacturing hit an eight-month low, surveys showed on Wednesday, as economies worldwide showed signs of slowing.

Economic malaise was worst in the 17-country euro zone, where output plummeted and the manufacturing sector contracted for an 11th straight month as a downturn that began in smaller countries continued to spread into core euro area economies.

The slump worsened in Italy, Spain and Greece as well as the region's two biggest economies -- Germany and France.

Europe's economic woes also depressed export orders in China and India, where manufacturing had appeared to be holding up despite the euro zone debt crisis and slowing U.S. growth.

U.S. manufacturing, meanwhile, contracted for a second consecutive month, according to the Institute for Supply Management's index of national factory activity.

A separate report from Markit showed activity barely expanding and at its slowest pace in almost three years, partly due to lower European demand for U.S. products.

"The manufacturing numbers are pretty dismal. There's really no good way to read them," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "I think they bolster the case for more Federal Reserve action, and globally the argument is pretty much the same."
Would Another Round of QE Help?

Everyone is looking for the Fed to do something.

I have to ask what good could it possibly do? Yield on the 10-year treasury is about 1.5%. Would it make any difference to businesses if it was 1.25% or even 1%?

I suggest additional monetary stimulus would not do anything to spur job creation and it would continue to punish those on fixed incomes.

An additional round of QE could ignite a further rally in equities (already in bubble land). However, one of these QE moves by the Fed will blow sky high, and with equities priced beyond perfection, the next round of QE may be the one.

I had not seen this ISM report when I wrote ADP Estimates Nonfarm Payroll Growth at +163,0000; Why I'll Take the Under (Way Under)

This is what I said earlier today "Given the global collapse in new orders including the US, weak ISM numbers in the US, and generally bad regional manufacturing reports, I believe there is potential for a really awful jobs report either this month or next and I will go for this month."

I certainly see no reason to change that call.

Mike "Mish" Shedlock
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