April’s First Half

The Lehmann Letter (SM)

Three important economic indicators show that April started strong, although cautionary signs remain.

The Purchasing Managers' Index was 59.6% in March, with any reading over 50% indicating expansion. This index tells us whether or not large industrial firms face tighter supply conditions when purchasing key inputs and materials. Tighter supply conditions indicate that manufacturing is gaining strength as firms compete for scarceer resources.

You can see from the chart that the index plunged during the recession. Manufacturers found it easy to purchase key inputs and materials during slack economic conditions. But now the economy has gained strength and you can see that the index has moved solidly above 50%. March's reading of almost 60% indicates a strong rebound.

Purchasing Managers’ Index

(Click on chart to enlarge.)



Recessions shaded

Sales of new automobiles confirm this strength. New-vehicle sales were 11.8 million at a seasonally adjusted annual rate in March. You can see from the chart that they dipped below 10 million during the recession. Now they are solidly above 10 million again.

New-Vehicle Sales

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Recessions shaded

The latest consumer-credit data send a different signal. The chart clearly illustrates consumer credit's record-setting plunge during the recession. Households desperately repaid their debt in an attempt to strengthen and re-liquefy their balance sheets. Since consumer credit supports such a large share of households' expenditures on durable goods (including automobiles), it is difficult to envision a strong recovery until consumer borrowing turns solidly positive again.

Consumer Credit

(Click on chart to enlarge.)



Recessions shaded

Consumer credit was positive in January, but fell by $138 billion at a seasonally adjusted annual rate in February (the latest month for which data are available). Which reading is anomalous, January's positive number or February's negative figure? We will have to wait to see.

We definitely have recovery, but it will take time to assess its strength.

(The charts were taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann