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Investing Specialists

Don't Throw in the Towel on Recovery Just Yet

The fall in the ISM index this month doesn't necessarily mean the recovery is stalled.

Every month the ISM (Institute of Supply Management) releases its survey of purchasing managers in the manufacturing sector. Today's PMI number was below expectations, clocking in at 52.6 versus 52.9 the prior month and expectations of something closer to 54. This miss is at least partially responsible for the market hitting the panic button today.

Still, given that the market has come up so fast and so far (almost 60% in just over six months) some retrenchment was probably in the cards, with or without the PMI number. In fact, things really aren't so dire, a number over 50 indicates that more people believe things are getting better than getting worse. A number sustained in this range typically correlates with GDP growth of over 3%.

The PMI is a wonderful and very reliable early indicator of the end of a recession. As I have mentioned many times, this indicator tends to bottom four or five months prior to the recession, which is exactly what happened this time, as I believe the end of the recession will be pegged in either May or June based on the big coincident indicators (retail sales, employment, industrial production, and incomes). This would be about five months after the index bottomed at 32.9 in December.