Monday, December 03, 2012

Introducing MM Indicators

Today's Manufacturing ISM report was extremely disappointing, falling below the critical level of 50. Any number below 50 signals contraction in the manufacturing sector of the economy. Today's number (which measures November activity) came in at 49.5, its lowest level since July 2009.

Some time ago, I began tracking a number of economic indicators, including the ISM Index, that I believe provide a good signal of future economic activity. These indicators focus on employment, housing, manufacturing, services, and the stock market. I have been aggregating and quantifying the numbers on a short-term (i.e., month-over-month) basis and long-term (i.e., year-over-year) basis as shown in the table above. Dubbed the MM Indicators, a positive figure indicates improvement in the economy while a negative number indicates deterioration. As the table above shows, in the aggregate, economic indicators are much healthier today than they were a year ago, yet slightly worse than they were in the recent past. The danger, of course, is that prolonged short-term deterioration can turn into a serious long-term problem.