Waiting on AFLAC and the ISM

Yesterday, the Dow closed out its best January in 14 years. Today, the focus will be on the ISM report which is due out later this morning and AFLAC’s earnings which are due after the bell.

The current estimate for the ISM Index is 57.5 which sounds about right. As I’ve mentioned before, the ISM is probably one of the best indicators that tells us if we’re in a recession or not.

The index is wired so that any reading above 50 indicates that the economy is expanding and any reading below 50 signals a contraction. NBER, the folks who date recessions, have shown a strong tendency to declare months below 45 as recessions. In the chart below, notice how strongly declines in the ISM correspond with recessions (the grey bars).

January will most likely be the 18th-straight month of a 50+ reading. What I especially like about the ISM is that it comes out on the first business day of the month, and there aren’t endless revisions.

We’re also going to get a report on construction spending plus auto and truck sales.

The economic news that came out yesterday was very encouraging. The Chicago PMI, which gauges economic activity, jumped to its highest level since 1984. For January, the index hit 68.8 up from 66.8 in December.

The Commerce Department reported that personal incomes rose 0.4% in both November and December. The problem is that spending rose by 0.7% in December and 0.3% in November.

The numbers showed that Americans saved $613 billion in December which was a drop of $20 billion from November. The savings rate fell from 5.5% to 5.3%. This data series will get a jolt this year thanks to the 2% cut in payroll taxes which began on January 1st.

Posted by on February 1st, 2011 at 9:09 am


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