Supply-Side Indicators

The Lehmann Letter ©

Over the past couple of months this letter has focused on the demand-side data in an attempt to evaluate the forces that could pull us out of the economic ditch. Conclusion: It will be a long, slow haul.

Consequently past editions of this letter concluded that growing profit margins rather than growing sales volume (earnings = margins X volume) had driven the recent stock market run-up and that slow sales-volume growth imperiled future stock-market gains.

See today's Wall Street Journal for a front-page article that takes a like-minded view: http://online.wsj.com/article/SB10001424052748704477904575586181999090898.html?mod=ITP_pageone_0

It reinforces a similar article in Sunday's New York Times: http://www.nytimes.com/2010/10/31/your-money/31fund.html?_r=1&scp=1&sq=Paul%20Lim&st=cse

If sales-volume growth faces a rocky future, what about the profit-margin growth that fueled the stock market's recent jump?

This month's letters will focus on the most important and readily accessible supply-side indicators in order to discern the production, cost and inflation trends that influence profit margins.

For instance, this morning's Institute for Supply Management's October Purchasing Managers' Index rose modestly to 56.9% from September's 54.4% (anything over 50% indicates expansion): http://www.ism.ws/ISMReport/MfgROB.cfm

The Index reports purchasing managers' ease or difficulty in obtaining manufacturing inputs. A rising Index indicates a stronger economy.

But rising output can also signal rising costs, a squeeze on profit margins and rising prices (inflation). Are we headed toward an inflationary profit-margin crunch? This month's letters will track these indicators to find a clue.

Here’s the publication schedule for some of November 2010’s most important supply-side indicators.

PUBLICATION SCHEDULE

November 2010

Source (* below)……Series Description……Day & Date

Quarterly Data

BEA……….…GDP……..……Tue, 23rd

Monthly Data

ISM...Purchasing managers’ index….Mon, 1st

BLS…………….Employment……… Fri, 5th
Census………...Inventories…………..Mon, 15th
BLS…………….Producer prices…….Tue, 16th
Fed…………….Capacity utilization….Tue, 16th
BLS…………….Consumer prices…..Wed, 17th
Census……….Capital goods…..…..Wed, 24th

* BEA = Bureau of Economic Analysis of the U.S. Department of Commerce
* BLS = Bureau of Labor Statistics of the U.S. Department of Labor
* Census = U.S. Bureau of the Census
* Fed = Federal Reserve System
* ISM = Institute for Supply Management

© 2010 Michael B. Lehmann