April 03, 2012 at 09:55 AM EDT
Manufacturing Sector has No Business Rallying
Over the course of the last week, we’ve received several manufacturing sector reports, which offer an opportunity now for a timely review of the sector. The slew of reports culminated in Monday’s reporting of the ISM Manufacturing data, and also include last week’s data from the Federal Reserve branches of Dallas, Richmond and Kansas City, plus the latest Durable Goods Orders data and Chicago Purchasing Managers Index. Tuesday brings a fresh update on Factory Orders as well.
Relative tickers: NYSE: BA, NYSE: RTN, NYSE: DGI, NYSE: GY, NYSE: GD, NYSE: GR, NYSE: NOC, NYSE: HON, NYSE: LMT, NYSE: COL, NYSE: LLL, NYSE: ERJ, Nasdaq: FLIR, Nasdaq: BEAV, NYSE: TDG, NYSE: SPR, NYSE: CAE, NYSE: ATK, NYSE: HXL, NYSE: TGI, NYSE: ESL, NYSE: MOG-A, NYSE: HEI, NYSE: TDY, NYSE: CW, Nasdaq: CVCO, NYSE: SKY, Nasdaq: NOBH, Nasdaq: PHHM, NYSE: MHK, Nasdaq: IFSIA, NYSE: AIN, NYSE: UFI, NYSE: ITW, NYSE: TYC, NYSE: CMI, NYSE: KUB, NYSE: IR, NYSE: DOV, NYSE: ITT, NYSE: FLS, NYSE: PLL, NYSE: DRC, NYSE: SPW, NYSE: GDI, NYSE: IEX, Nasdaq: NDSN, NYSE: GGG, NYSE: ATU, Nasdaq: MIDD, NYSE: ABB, NYSE: ETN, NYSE: NJ, NYSE: ROK, NYSE: AME, NYSE: RBC, NYSE: TMB, Nasdaq: WGOV, NYSE: CAT, NYSE: DE, NYSE: CNH, Nasdaq: JOYG, Nasdaq: BUCY, Nasdaq: AGCO, NYSE: EMR, NYSE: PH, NYSE: ROP, NYSE: PNR, NYSE: WM, NYSE: RSG, Nasdaq: FAST, NYSE: VMC, NYSE: MDU, NYSE: MLM, NYSE: OC, NYSE: VAL, NYSE: PCP, NYSE: X, NYSE: RS, NYSE: CRH, NYSE: CX, NYSE: EXP, NYSE: FLR, NYSE: MDR, Nasdaq: FWLT, NYSE: ICA, NYSE: SWK, NYSE: TKR, NYSE: KMT, NYSE: LUK, NYSE: MAS, NYSE: WY, NYSE: PWR, NYSE: CBI, NYSE: EME, NYSE: SNA, NYSE: TTC, NYSE: GM, NYSE: F.
Manufacturing Sector Review
The latest ISM Manufacturing Report showed the Purchasing Managers’ Index (PMI) inched higher to a mark of 53.4% in March, up from February’s 52.4% read. Economists surveyed by Bloomberg forecast a less robust gain to a consensus forecast of 53%. A close inspection of the data shows the pace of New Order growth slowed, export growth dropped sharply, prices ran high and customer inventories were too low. In other words, the details reveal something less appealing than the headline seen in the popular press, as usual. Given that this index has flirted with the threshold to sector contraction since last summer, there seems little reason to draw much comfort from it today. This index is particularly important these days as it flirts with the breakpoint between economic expansion and contraction. Historic data indicate that a reading above a mark of 50 generally reflects expansion in the manufacturing sector, where readings below 50 indicate sector recession. Read more on this specific report here.
Last week, we received a slew of key data that should prove useful to measure the health of the manufacturing sector. It seems most appropriate to begin this retro-discussion with the important Durable Goods Orders data for February. After a difficult result in January, Durable Goods Orders came up short again in February. New Orders for Durables increased 2.2%, missing the consensus of economists’ views, which had been set at +2.9% for the month, based on Bloomberg’s survey. The data point was partially impacted by an upward revision to January, which was hiked to -3.6% from -4.0% at its initial reporting. Still, the month missed the mark even when accounting for the revision. Excluding transportation, thus eliminating the influence of the high ticket items that tend to skew the overall data wildly month-to-month, orders rose 1.6%. This data point, while fighting the tide of an upward revision to January’s result, still exceeded the economists’ consensus for a 1.5% increase.
Breaking out manufacturing from the Durables Report, we see that the sector experienced a 2.8% increase in new orders. That was certainly good news and a positive sign for the sector. The month’s increased orders marked a nice change from January’s 5.1% decline. Still, February’s ordering activity remained 2.5% below December’s activity. Furthermore, Manufacturing Shipments were down 0.5% in February, following a 0.7% drop in January.
Last week’s regional Federal Reserve branch manufacturing reports offer a different message than ISM’s headline did Monday. Across Dallas, Richmond, Kansas City and Chicago, the message was the same, slower growth which surprised economists on the short side. The Dallas Fed reported its Business Activity Index fell to 10.8 in March, from 17.8 in February. The monthly reading missed the economists’ consensus forecast for 15.5, and was deeply short of the lowest forecast for a reading of 15.0, as measured by Bloomberg. The Richmond Fed Manufacturing Index dropped sharply to a mark of 7, from 20 in February. This index reading, like Dallas, again deeply missed the economists’ consensus forecast for 18 and fell under the lowest forecast for 15. The Kansas City Fed Manufacturing Index slipped to 9 in March, from 13 in February. Finally, the Chicago Purchasing Managers Index (PMI) retreated to 62.2, from 64.0 in February. It was likewise short of economists’ views for 63.0 in March.
The message seems clear. Manufacturing expansion is slowing in March at a pace faster than expected by economists. It’s unclear at this point, based on the data, whether the manufacturing sector might contract after nearly 3 years of expansion or not. However, anecdotal reports I receive about the Greek economy and my view of the situation seem to say Greece and Europe will deteriorate worse than the talking heads atop the troika are reporting. With 20% of our exports selling into Europe, we cannot escape impact. It’s also my view that China will pay the price for its exaggerated economic expansion effort, and find a hard landing of its own before long. Finally, I fear the Iranian trigger could so disrupt global trade that a global recession will ensue with costly results for overextended central banks and currencies. My forecasts have tended to lead popular understanding, due to my independent, unbiased position and my willingness to make forecasts contrary to the popular view.
Thus, I reiterate my view that the day’s market rally on manufacturing data was misplaced, with the SPDR S&P 500 (NYSE: SPY) closing up 0.7% on the day. The Industrial Select Sector SPDR (NYSE: XLI) was up more than the broader indices before giving way toward the close (+0.65%). Within the industrials group, sector players Cummins (NYSE: CMI), Emerson Electric (NYSE: EMI) and Caterpillar posted gains of roughly 1% or so, while Honeywell (NYSE: HON), General Electric (NYSE: GE), UPS (NYSE: UPS) and United Technologies (NYSE: UTX) were about unchanged or fractionally lower. I expect any gains made on nascent data will evaporate.
See also this article for more on the ISM Manufacturing Report.
This article should interest investors in Boeing (NYSE: BA), Raytheon (NYSE: RTN), Digital Globe (NYSE: DGI), GenCorp (NYSE: GY), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), Northrop Grumman (NYSE: NOC), Honeywell (NYSE: HON), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR Systems (Nasdaq: FLIR), BE Aerospace (Nasdaq: BEAV), TransDigm (NYSE: TDG), Spirit Aerosystems (NYSE: SPR), CAE (NYSE: CAE), Alliant Techsystems (NYSE: ATK), Hexcel (NYSE: HXL), Triumph Group (NYSE: TGI), Esterline Technologies (NYSE: ESL), Moog (NYSE: MOG-A), Heico (NYSE: HEI), Teledyne (NYSE: TDY), Curtiss-Wright (NYSE: CW), Cavco (Nasdaq: CVCO), Skyline (NYSE: SKY), Nobility Homes (Nasdaq: NOBH), Palm Harbor Homes (Nasdaq: PHHM), Mohawk Industries (NYSE: MHK), Interface (Nasdaq: IFSIA), Albany International (NYSE: AIN), Unifi (NYSE: UFI), Illinois Tool Works (NYSE: ITW), Tyco International (NYSE: TYC), Cummins (NYSE: CMI), Kubota (NYSE: KUB), Ingersoll-Rand (NYSE: IR), Dover (NYSE: DOV), ITT Corp. (NYSE: ITT), Flowserve (NYSE: FLS), Pall (NYSE: PLL), Dresser-Rand (NYSE: DRC), SPX (NYSE: SPW), Gardner Denver (NYSE: GDI), IDEX (NYSE: IEX), Nordson (Nasdaq: NDSN), Graco (NYSE: GGG), Actuant (NYSE: ATU), Middleby (Nasdaq: MIDD), ABB (NYSE: ABB), Eaton (NYSE: ETN), Nidec (NYSE: NJ), Rockwell Automation (NYSE: ROK), Ametek (NYSE: AME), Regal Beloit (NYSE: RBC), Thomas & Betts (NYSE: TMB), Woodward Governor (Nasdaq: WGOV), Caterpillar (NYSE: CAT), Deere (NYSE: DE), CNH (NYSE: CNH), Joy Global (Nasdaq: JOYG), Bucyrus (Nasdaq: BUCY), Agco (Nasdaq: AGCO), Emerson Electric (NYSE: EMR), Parker Hannifin (NYSE: PH), Roper Industries (NYSE: ROP), Pentair (NYSE: PNR), Waste Management (NYSE: WM), Republic Services (NYSE: RSG), Fastenal (Nasdaq: FAST), Vulcan Materials (NYSE: VMC), MDU Resources (NYSE: MDU), Martin Marietta Materials (NYSE: MLM), Owens Corning (NYSE: OC), Valspar (NYSE: VAL), Precision Castparts (NYSE: PCP), United States Steel (NYSE: X), Reliance Steel (NYSE: RS), CEMEX (NYSE: CX), Eagle Materials (NYSE: EXP), Fluor (NYSE: FLR), McDermott International (NYSE: MDR), Foster Wheeler (Nasdaq: FWLT), Empresas ICA (NYSE: ICA), Stanley Black & Decker (NYSE: SWK), Timken (NYSE: TKR), Kennametal (NYSE: KMT), Leucadia National (NYSE: LUK), Masco (NYSE: MAS), Weyerhaeuser (NYSE: WY), Quanta Services (NYSE: PWR), Chicago Bridge & Iron (NYSE: CBI), EMCOR (NYSE: EME), Snap-on (NYSE: SNA), Toro (NYSE: TTC), GM (NYSE: GM) and Ford (NYSE: F).
Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.
Inquiries about Wall Street Greek content and advertising services can be emailed to Advertise @WallStreetGreek.com.
ABB Ltd. ADS Actuant Corp. Cl A Albany International Corp. Cl A Alliant Techsystems, Inc. Ametek, Inc. BE Aerospace, Inc. Boeing Co. CAE, Inc. CNH Global N.V. Caterpillar, Inc. Cavco Industries, Inc. Cemex S.A. de C.V. ADS Chicago Bridge & Iron Cummins, Inc. Curtiss-Wright Corp. Deere & Company DigitalGlobe, Inc. Dover Corp. Dresser-Rand Group EMCOR Group, Inc. Eagle Materials, Inc. Eaton Vance Michigan Municipal Income Trust Embraer S/A Emerson Electric Co. Empresas ICA S.A. de C.V. ADS Esterline Technologies Corp. Fastenal Co Flir Systems, Inc. Flowserve Corp. Fluor Corp. Ford Motor Co. Foster Wheeler AG Gardner Denver, Inc. GenCorp, Inc. General Dynamics Corp. General Electric General Motors Graco, Inc. Heico Corp., Hexcel Corp. Honeywell International, Inc. IDEX Corp. ITT Illinois Tool Works, Inc. Ingersoll-Rand Kennametal, Inc. Kubota Corp. ADS L-3 Communications Holdings, Inc. Leucadia National Corp. Lockheed Martin Corp. MDU Resources Group, Inc. Martin Marietta Materials, Inc. Masco Corp. McDermott International, Inc. Middleby Corp Mohawk Industries, Inc. Moog Inc. Cl A Nidec Corp. ADS Nordson Corp Northrop Grumman Corp. Owens Corning Pall Corp. Parker Hannifin Corp. Precision Castparts Corp. Quanta Services, Inc. Raytheon Co. Regal-Beloit Corp. Reliance Steel & Aluminum Co. Republic Services, Inc. Rockwell Automation Corp. Rockwell Collins, Inc. Roper Industries, Inc. S&P DEP RECEIPTS SPX Corp. Select Sector SPDR-Industrial Skyline Corp. Snap-On, Inc. Spirit AeroSystems Holdings Inc. Cl A Stanley Black & Decker, Inc Teledyne Technologies, Inc. Timken Co. Toro Co. TransDigm Triumph Group, Inc. Tyco International Ltd. Unifi, Inc. United Parcel Service Inc. Cl B United States Steel Corp. United Technologies Corp. Valspar Corp. Vulcan Materials Co. Waste Management, Inc. Weyerhaeuser Co.
Stock Market XML and JSON Data API provided by FinancialContent Services, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Press Release Service provided by PRConnect.
Stock quotes supplied by Telekurs USA
Postage Rates Bots go here