“Danske Bank has a nice piece of research out that provides the other side of the bearish view on all the recent economic data. They actually believe the data in the near-term will continue to be very weak. Specifically, they say the ISM data is likely to mean revert (something I wholeheartedly agree with). But they think it’s incorrect to get overly bearish because of this. In fact, they say it will result in a “false growth scare”:
If you enjoy the content at iBankCoin, please follow us on Twitter“We believe that we are going to see more signs of weaker activity from different indicators in the coming months. For example, the US ISM manufacturing index is expected to decline in coming months as indicated by the Philadelphia Fed survey. Declines in PMI in other countries such as Euro Flash PMI for May point to a slowing global industrial cycle, which should become visible in the US as well.
Supporting the case for a stronger decline in the ISM manufacturing index is also that hard data have been much weaker than suggested by the ISM index. Firstly, GDP growth was actually below trend in Q1 rising 1.8% q/q annualised. Last time there was such a large divergence between GDP growth and ISM was in 2004 and subsequently we saw a quite fast decline in the ISM index (see chart on page 1). Secondly, industrial production has already slowed. The three-month annualised growth rate was only 1.8% in April, down from the strong levels in mid 2010 of 9.5%. “
