Mish's Global Economic Trend Analysis

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Manufacturing ISM Rebounds Slightly but Employment Drops; ISM at a Glance Posted: 01 Jul 2013 12:04 PM PDT US Manufacturing as measured by the June 2013 Manufacturing ISM Report On Business® is treading water barely above contraction. Economic activity in the manufacturing sector expanded in June following one month of contraction, and the overall economy grew for the 49th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®. The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 50.9 percent, an increase of 1.9 percentage points from May's reading of 49 percent, indicating expansion in the manufacturing sector for the fifth time in the first six months of 2013. The New Orders Index increased in June by 3.1 percentage points to 51.9 percent, and the Production Index increased by 4.8 percentage points to 53.4 percent. The Employment Index registered 48.7 percent, a decrease of 1.4 percentage points compared to May's reading of 50.1 percent. Manufacturing employment contracted for the first time since September 2009, when the index registered 47.8 percent. The Prices Index registered 52.5 percent, increasing 3 percentage points from May, indicating that overall raw materials prices increased from last month. Comments from the panel generally indicate slow growth and improving business conditions." ISM at a Glance Series Data Apr Index Mar Index Percentage Point Change Direction Rate of Change Trend (Months) PMI™ 50.9 49.0 +1.9 Growing From Contracting 1 New Orders 51.9 48.8 +3.1 Growing From Contracting 1 Production 53.4 48.6 +4.8 Growing From Contracting 1 Employment 48.7 50.1 -1.4 Contracting From Growing 1 Supplier Deliveries 50.0 48.7 +1.3 Unchanged From Faster 1 Inventories 50.5 49.0 +1.5 Growing From Contracting 1 Customers' Inventories 45.0 46.0 -1.0 Too Low Faster 19 Prices 52.5 49.5 +3.0 Increasing From Decreasing 1 Backlog of Orders 46.5 48.0 -1.5 Contracting Faster 2 Exports 54.5 51.0 +3.5 Growing Faster 7 Imports 56.0 54.5 +1.5 Growing Faster 5 Synopsis In my June 3 Manufacturing PMI Synopsis I stated "The consensus estimate was for slower growth, but here we are. Manufacturing is in contraction and the economy continues to weaken. Given the plunge in new orders and backlog of orders, jobs and the overall economy will likely weaken as well. Expect that trend of 48 months of economic growth to break next month." The trend of overall economic growth did not break as the economy purportedly grew for the 49th month (confusing as the PMI was in contraction last month but the ISM's estimate of growth was not). However, the 44 month history of manufacturing employment growth is now history. Expect the rest of the economy to soon follow. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Rand Paul Walks Fine Line to Prove He is Not His Dad; Reflections on Pragmatic Pandering Posted: 01 Jul 2013 10:12 AM PDT To win the 2016 election, Rand Paul has to prove he is not his dad, that he is still a libertarian, and most importantly that he is not "weak on defense", a phrase that has different meanings to different people. It's a tough line to follow but Paul is handling himself very well as noted by the Daily Beast in Rand Paul: I'm Not My Dad. With 2016 in his sights, Rand Paul is distancing himself from some of his father's more extreme views. David Catanese on why the apple must fall just far enough from the tree. Standing in front of more than 100 South Carolina GOP activists in West Columbia Friday night, the Kentucky senator largely steered clear of the week's two dominant, divisive issues that are tying his party in knots: Gay rights and immigration reform. Instead, he diverted from his early presidential-primary-state speech script and went for the jugular on a topic that, while not necessarily timely, would surely please a military-friendly crowd: A full-throated defense of profiling. "After 9-11 we had a special program for student visas . . . Why?" Paul asked. "Because 16 of the 19 hijackers were overstaying their students visas. Was it targeting? Was it profiling? Yes. Because only certain people are attacking us. Why don't we use some brain sense to go after the people who are attacking us?" The guests ate it up, rewarding Paul with sustained thunderclaps. It was one of his biggest applause lines of the night. But it was also a curious statement from a likely 2016 White House contender who built his brand on a libertarian approach to government. This, from the same guy who stood on the Senate floor for 14 hours to protest the potential use of drones to target Americans? The address was almost exclusively devoted to foreign affairs and tactics employed in the country's struggle against terrorism -- a marked change from his previous early state primary speeches and a subtle acknowledgment that he must prove he's no softy when it comes to national security. It's not that Paul walked away from his core libertarian philosophy. He stood by his belief that even those charged with the most heinous, evil crimes --- like the Boston bombing -- deserve a day in court. "You may not all agree on this but it's worth thinking about," Paul cautioned before explaining his rationale to halt indefinite detentions of possible terrorists. When he bravely posited his idea of a full audit of the Pentagon, he was met with complete silence. But he strived to emphasize that greater oversight of the military isn't incongruent with support for troops on the ground. Hogan Gidley, a former state party official who advised Rick Santorum's 2012 presidential bid, said it was evident Rand's mission was to wipe away any perception that he was weak on defense. "His father, rightly or wrongly, was saddled with being anti-military. I think he wanted to say, 'I'm a little tougher' from the foreign policy standpoint. South Carolinians love that stance. He wanted to get out front of being outflanked on the right on military issues," Gidley said. It's a thin line to walk for a candidate-in-the-making whose libertarian streak helped define his identity, but could ultimately limit his ambitions. He is astute enough to address his vulnerabilities with large sections of the party. But with every speech or position that's calibrated to win converts and broaden his appeal, there's the risk that he could end up losing part of the fervent base built for him by his father. Rep. Mick Mulvaney, a close friend of Rand's who jogs and plays baseball with him, said he believes what most significantly separates the senator from his father is his ability to crisply articulate his ideas in a marketable fashion. "Rand knows how to deliver the libertarian-leaning conservative message better than anybody, at least as well as anybody," praised Mulvaney. "Some folks might've looked at Ron Paul and dismiss him out of hand because he was far too extreme to them. They'll not be able to do the same thing with Rand after they meet him. If you sit and talk to Rand, he comes across as extremely bright, extremely articulate and the farthest thing from crazy or extreme." The speech in South Carolina offers an acute example of Paul's crafty approach to winning over a room -- with some instant evidence of success. But ironically, it simultaneously exposes the outline of a potential attack that could be used against him by a 2016 rival: That Paul has morphed into a panderer, all too willing to tweak his positioning in the pursuit of politics. Reflections on Pandering Any candidate, from either political party, must pander to some extent to win the nomination. Then to win the presidency, the nominees must pander in different directions to prove they are not who they said they were during the nomination process. Unfortunately, that's the nature of the game. The winning approach is to pander as little as possible in both phases of the campaign. So far, Rand Paul is doing and saying the right things, while still maintaining his overall libertarian stance. Paul is doing  enough to maintain his and his father's core (and very fervent) libertarian constituency. Unless he strays too far from that line, and he hasn't, where else is the libertarian core going? Cautious Libertarian Philosophically, I would rather Paul not have to give in at all on some of these issues, especially defense spending. Pragmatically speaking, however, I would rather he bend a little and win the nomination, than not bend at all and lose it. Kowtowing to the extreme right-wing, as Mitt Romney did with his "teach Iran a lesson" war-mongering talk, then attempting to back out of it in the general election was a losing approach in 2012 and will be a losing approach in 2016.  And Kowtowing to the extreme right-wing is wrong on any issue, not just defense. After all, the extreme right is never going to vote Democratic. It's the independents and moderates that hold the key to winning the election. So upsetting moderates to appease the fervent far-right core is simply bad politics. Rand Paul is what the country needs, and I like his cautious libertarian approach. And if Paul wins the nomination, I think he can deliver the right platform that will win over the independents and the Reagan Democrats (and thus the election). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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