This morning's 10:00 AM release of the Chicago Purchasing Managers Index (PMI), which showed a robust jump to 53.1% in this more regional measurement of manufacturing activity, has given stocks a bit of a boost after a higher open. Some economists warn that this type of jump in the Chicago PMI is most likely due to a "catching up" to the more broader based ISM reports and also some activity at the manufacturing level that is taking place to help replenish recently depleted inventory levels that were brought on by cuts in production and deep discounting of merchandise at the wholesale and retail levels.
Readings above the 50% level in the PMI data indicate expansion of activity. On Friday, investors will get a look at the broader ISM data, where economists are expecting a more modest rise to 50.5%, which would be slightly higher than the previous January reading of 49.9%.
Last night's reading
Last night I read Fed Chairman Alan Greenspan's notes and report that was given to Congress along with the Fed's monetary report. The major concerns for the Fed were highlighted as uncertainty about the continued strength of the consumer and if the consumer will continue to spend at the rate they have and keep a slow economic growth recovery underway.
The report did hint that we may well see some volatile economic numbers as it relates to the replenishing of inventories and that too much weight shouldn't be put on some of the manufacturing numbers as inventories will most likely have to be built as sales drastically had outpaced stockpiles of inventory. The question the Fed could not answer is "will consumer spending remain robust enough to have manufacturers ramping up production and hiring back workers, or will manufacturers utilize their productivity gains, increase existing worker's labor hours, to get a more short-term inventory rebuilding?"
What the Fed and most economic bulls want/need for a more healthy and longer-lasting recovery is for the consumer to remain strong and increase their spending further, thus providing the demand that has manufacturers hiring back workers and utilizing idle capacity.
The thinking for the Fed then becomes... if workers are hired back, then that is more money available at the consumer level, that would then help provide the needed synergies for continued gains in spending at the consumer level.
Some economists still refer to the "trickle-down economic theory" and that does seem to be what the Fed is looking for. I would note in the report the Fed did mention a pending "tax cut" that could help the consumer. Our last check from the Senate was that any talks of a tax cut proposal were put to rest weeks ago when Republicans and Democrats could not agree on any type of tax-cut plan. In part, that will most likely have the Fed and many economists that listen to the Fed still concerned and somewhat doubtful about any type of robust economic growth or staying power.