The January AIG PMI is out this morning and low and behold manufacturing expanded:
Yay! And now for the bad news. The expansion seems to have been driven by an enormous outperformance by a single stomach-stuffing sector:
The index is seasonally adjusted but the category seems to outperform every year as the Christmas binge leaves the shelves bare. Sadly, the restocking passes just as quickly as we backflip to the fulsome joy of January belt-tightening. More worrying, textiles, clothing and footwear also usually enjoy just as large a bounce on post-Christmas restocking but not this year. If this is any guide for retail, it appears we spent most of out Christmas pennies on filling the fridge not the sock drawer. Indeed, the index generally enjoys an end of year bounce on the Christmas cycle and in that context this bounce is weak.
There are further signs the the index is unlikely to build on its gains:
Note that the new orders sub-component is not accelerating, employment got whacked and although export orders were up they remain in contraction and with the dollar rebounding this month will soon roll over again. Assuming QE3 arrives the dollar can only climb, even in the face of rate cuts, at least initially.
I started the year with hope for the sector and still think there’ll be renewal but if the dollar keeps going the pressure will continue.
