On a practical level, we have always found it of interest that, although financial markets place great stock in such 'high frequency' indicators as the US ISM Manufacturing Index, the indices may only have limited relevance to the economy as a whole. These confidence indices typically ask if conditions got 'better or worse?' in the latest month and, while it is true that manufacturing sector conditions are deemed to have improved in the latest three months, these three months represent the only periods of expansion in the last 20 months - in the other 17 months the manufacturing sector declined and, given this almost unprecedented contraction, some form of rebound was always to be expected particularly in light of the various governments' "cash for clunkers" car subsidies.
It remains to be seen, however, whether the recent manufacturing sector revival will extend into the remainder of the year now that the car schemes around the world have generally ended. However, this is not the only reason that we would not read too much into these manufacturing surveys.
Read the full Tyndall Comment.