Wednesday, April 04, 2007

ISM Indexes Confirm Stagflation Scenario

While the suprising release of the 15 British hostages kidnapped by Iran will push down oil prices somewhat and so increase growth somewhat and lower inflation slightly, other news seem to confirm the stagflation scenario. Of particular interest are the ISM indexes over economic activity. The ISM manufacturing index released monday showed a drop in the overall index from 52.3 to 50.9 and the key new orders component dropping to 51.6 from 54.9. However, the prices paid component showed a rise from 59.0 to 65.5. Similarly, the non-manufacturing index showed a decline in the overall index to 52.4 from 54.3, with the key new orders index falling from 54.8 to 52.8. However, the prices paid component rose from 53.8 to 63.3.

Factory orders data also indicated weakness. Job growth according to the private ADP survey was a bit firmer, but it is well known that employment is a lagging indicator. Meanwhile, a leading lender of subprime mortgages have gone into bankruptcy.

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