The economic model used on MTRIG which follows real-wages was moving higher each month. Still a year over year basis it is flat. With commodity prices moving up over the last month due to the heat conditions around the globe we can expect food commodity prices to rise. When this happens the real-wages model will start to turn back down. What does all the mean? With consumers feeling money is tight spending will be reduced and this will reflect in stock prices. Typically this can be seen 3 - 6 months out. Ideally if the model turned up +2% year over year we would expect stock prices to rise.
The image below was updated with May 2012 data. June 2012 data should be coming out in the next two weeks. Click here for the interactive version of the chart.
The ISM's manufacturing index (PMI) dropped below 50 in June. This reflects a slowing economy and slowing growth. We will have to watch for this trend to see if it continues. Based on the real-wages the PMI may continue the downward slope. This of course is negative for stock prices. Click here to view the interactive version of this chart.
The table below is from the ISM's Report for June showing the down trend of 1 month for the PMI index.
Manufacturing contracted in June as the PMI registered 49.7 percent, a decrease of 3.8 percentage points when compared to May's reading of 53.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI indicates growth for the 37th consecutive month in the overall economy, but indicates contraction in the manufacturing sector for the first time since July 2009, when the PMI registered 49.2 percent. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (53 percent) corresponds to a 3.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (49.7 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually." Read the full report here.