Financial Professionals


Q2 Begins With China PMI & U.S. ISM


The second quarter begins today with much caution for a potentially similar market and economic slowdown experienced in each of the prior three years during Q2.


A few hours before the actual calendar flipped to April, the monthly China PMI (Figure 1.1) was reported for business activity during March. I expect the market will not trade in either direction with a high degree of confidence since Lunar New Year distortions still do exist within the report. Business activity for April should be free of those distortions and provide a clearer picture for the condition of manufacturing in China. Until then, do not raise allocations to materials, my least favorite sector in 2013 to date.


  • China PMI for March rose to 50.9 from 50.1 last month, slightly below consensus estimates for 51.2
  • The 50.9 reading is the highest since business activity for April 2012 recorded a 53.3
  • New orders rose to 53.3 from 52.6 last month
  • New export orders rose to 50.5 from 50.4 last month
  • Employment fell to 50.1 from 50.6 last month
  • Output prices fell to 48.3 from 51.3 last month
  • Input prices fell to 48.9 from 54.3 last month


Shortly after the opening bell rang for the start of U.S. trading for Q2, the all-important U.S. Institute for Supply Management Manufacturing Index was reported. Coming off last month’s surprisingly strong 54.2 figure, the highest reading since June 2011, expectations were elevated that growth in U.S. manufacturing was about to accelerate to strong levels off of 2010 and 2011.


  • U.S. ISM Manufacturing (Figure 1.2) for March fell to 51.3 from 54.2 last month, below consensus estimates for 54.0
  • The -2.9 index point decline was the largest monthly drop since the -3.5 point index drop from June 2011 to July 2011.
  • The new orders to inventory ratio declined to +1.9 from last month’s +6.3
  • Employment did rise from 52.6 to 54.2
  • New export orders also rose from 53.5 to 56.0
  • Prices paid fell to 54.5 from 61.5
  • Production fell to 52.2 from 57.6


The headline miss is disappointing. The contraction in the new orders to inventory ratio is also alarming. However, I view the overall composition of the report as indicative of the overall U.S. economy. Growth is ever so slightly present but not enough to warrant the FOMC to alter its current easy monetary stance.  I do not expect this report to be the catalyst for a reversal in the S&P 500® Index (SPX). Rather, the importance of Friday’s U.S. Labor report has now been elevated.


Consensus Estimates for Friday’s U.S. Labor Report

  • Headline +185,000 to +205,000, down from last month’s +236,000
  • Privates +195,000 to +215,000, down from last month’s +246,000
  • Unemployment rate 7.7% to 7.8% from last month’s 7.7%



Figure 1.1 China PMI, April 2010 to Present


Source: Bloomberg


Figure 1.2 U.S. ISM Manufacturing Index, September 2010 to Present


Source: Bloomberg

Past performance is not a guarantee of future results.

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