Monday, January 3, 2011

ISM Manufacturing Pops to 57.0 from 56.6 Matching Expectactions

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At this point I don't think the economic data matters much as animal spirits are extremely high with the belief the market simply can not go down as the Bernanke put makes the Greenspan put look like amateur hour.  After today's spike, the S&P 500 is only about 10-12% away from many strategists year end targets of 1400-1425.  With 51 more Mondays to go this year and 11 more "first day of the months", not sure how we're going to be able to contain ourselves to only a 10-12% gain from here. 

As an aside every working American just got a 2% raise today, as the payroll tax holiday kicks in - that is $2000 per median household ($50K income) and $4000 for a higher income household ($100K).  This is on top of the huge transfer payment increases we have seen the past 2-3 years, some are measuring those at roughly $2500 per household.  (across 110M households)  While these numbers don't seem huge consider the median household income is roughly $50K.  The government is increasing this by about $4500 in 2011 (transfer payments + payroll tax) or almost 10% per household ... of course offset by massive deficits.  However, that is a huge non organic increase in income for the average household.  Spending is done at the margins if you exclude the upper end consumer... and these are significant supports for the consumer spending economy we now depend on.

It is going to be fascinating to see if the politicos actually take the payroll tax holiday back in 2012 or if they will extend it another year going into an election - because we surely will hear cries of "tax increases" if the 1 year tax hiatus is allowed to expire a year from now.

Today's ISM Manufacturing figure came in line with expectations at 57.0 with prices paid up 3 points (72.5 from 69.5) and new orders up 4.3 points (60.9 from 56.6).   In the Bernank's world, this is a great report as he loves inflation.  Strangely, both the export and import components fell, as did inventories. While manufacturing is only about 11% of the economy, and 9% of employment this report is still more closely watched than Wednesday ISM Non Manufacturing.

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