No joke: The economy is surging

Despite a modest stock-market pullback and mediocre job and income gains, global manufacturing is growing at a pace not seen since early 2011.

By Anthony Mirhaydari Sep 4, 2013 2:26PM

While everyone is preoccupied with Syria and the related machinations in Congress, the economy is quietly posting its best performance in two-and-a-half years. Not just here at home, but globally as manufacturing activity revs up across Europe, in Japan and in China.

 

Investors aren't paying attention because they're worried about Syria and the potential for Russian/Iranian/Hezbollah retaliation to any airstrike, as well as the specter of a spike in oil prices. They're worried about the looming budget negotiations in Washington as we once more approach the debt ceiling. And they're worried that the Federal Reserve will pull back its cheap money stimulus.

 

If we can clear those hurdles, the real economy is poised for a big rebound. Here's why.


Just look at the U.S. ISM Manufacturing index that was released on Tuesday. The reading for August came in at 55.7, following on July's 55.4 result (any reading over 50 indicates month-over-month growth in manufacturing activity). Compare that to the sub-50 reading we saw back in May.


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The surge has been driven by a bounce in new orders -- pointing to ongoing growth in output. The new orders subindex came in at 63.2 vs. 58.3 previously and a 48.8 reading in May.

 

According to the folks at Capital Economics, the current level of activity suggests overall GDP growth will increase to a 3% annual rate in the current quarter. Again, this is a level of strength we haven't seen since early 2011.

 

 

It's a similar story globally. Europe is exiting its recent recession, with the Eurozone Manufacturing PMI increasing to 51.4 for the best result since May 2011. German activity hit a 25-month high. The U.K. Manufacturing PMI came in at 57.2 with the manufacturing output subindeArrow Up (copyright Stockbyte/SuperStock)x posting its best performance since July 1994.

 

In China, the manufacturing sector is finding its footing again after Beijing's efforts to crack down on excessive lending dampened growth over the summer. China's HSBC Manufacturing PMI returned to growth last month with a 50.1 reading -- recovering from an 11-month low of 47.7 in July. Japan's JMMA Manufacturing PMI posted its sixth successive month of month-over-month growth on an acceleration in both production and new orders.

 

Earlier this year, the stock market soared while the economy struggled. Now, the relationship has reversed. While that's great news for middle class families waiting for a better job market or a long delayed raise, it means that investors face an even more treacherous market this autumn as a long list of catalysts are poised to buffet stock prices. 

 

That's why you're seeing stocks in key economically-sensitive areas like steelmakers and key industrial commodities like copper struggle to get traction. Just look at the Market Vectors Steelmakers (SLX) and the iPath Copper (JJC), and compare to the chart of manufacturing activity above. Clearly, the market believes the manufacturing rebound will prove short lived.

 

  

 

If we can get past Syria, the budget battle and the Fed taper with limited dramatics, the economy could finally achieve the "escape velocity" we've been waiting years for and return to a more normal growth rate, ending the long post-recession slog.

 

But until then, investors need to remain cautious with larger-than-normal cash allocations.

 

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


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169Comments
Sep 4, 2013 3:16PM
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economy "surging" ......... without jobs. how wonderful we don't need as many workers and corporate profits are way up and part time jobs without benefits are 70% of new jobs.  a new permanent underclass made up of former middle class folks who can't get welfare yet.  what a promising future for wall street.
Sep 4, 2013 3:15PM
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The only economy surge I see is the political / media surge to try to convince us that things are surging.
Sep 4, 2013 3:33PM
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The only thing surging is this guys mouth with a bunch of BS.
Sep 4, 2013 2:54PM
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And since 2011 was such a rockin' boomin' year beating 2011 is quite the accomplishment! NOT!
Sep 4, 2013 3:08PM
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Our economy reminds me a lot of China's empty cities.
Sep 4, 2013 3:49PM
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I agree, our economy is "surging" right down the toilet. Apparently all is well on Wall Street, while Main Street, USA continues its spiraling decline; due to corporate greed! Most all new job growth are part-time jobs with no benefits and extremely low wages too. The only "surge" I have seen is cost of living expenses (ex. groceries, yo-yo gas prices, clothing, utilities etc.)The local small town in which I reside; along with my household has seen, "change we can believe in"... none of it positive. Sooner or later Main Street's plight will "trickle up" to Wall Street. Our system of government is broken and no longer represents, "We the people." In my opinion both political parties should be ashamed of themselves.
Sep 4, 2013 3:34PM
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No joke: The economy is surging!

Really? What a bunch of crap! The truth would sound more credible to say "No Joke: The economy is beating! Like a heart attack! and needs the continual resuscitation of federal monopoly money to keep it pumping!

Sep 4, 2013 3:44PM
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As soon as I saw this post I knew IMMEDIATELY who penned it. Yet again this market shill amazes me with toeing the Government line of misinformation, disinformation, data manipulation and outright lies that a 'recovery' is underway. Just another attempt to get us to believe in it and do what we do best; consume! After all, if we all start buying stuff we can MAKE a recovery happen!
Sep 4, 2013 3:44PM
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I am in manufacturing and I can tell you there is no surge going on this summer. Many have cut hours and gone to 4 days to save money. Everyone I speak with is scared to death of Obama care as it a true monster that will effect everyone whether you like it or not. Massive new regulations from OSHA and the EPA. Higher energy costs and taxes but otherwise what headwinds? This guy has swallowed the koolaid hook, line and sinker. Another shill for the corrupt government!
Sep 4, 2013 3:49PM
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Obviously Anthony just got back from his smoke break (left handed cigs) before he wrote this article.  Either that or he just received his check in the mail from the MSM propaganda department.
Sep 4, 2013 3:56PM
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You've got nothing, Tony. The economy isn't going anywhere without stable employment. Didn't you read the article about housing's fall-out? Cars only sell on Subprime credit terms and the few models people want are in short supply. Apparently you do no grocery shopping because the number of once 16-ounce boxes reduced to 6 ounces is growing. It's almost over, my friend. You can go back to your former employment as a Circuit City Electronics Expert or Harbor Freight Cashier soon. Manufacturing is STILL not done in the light industries facilities that exist where Americans live. Making crap overseas and importing is destroying the world.
Sep 4, 2013 3:51PM
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Words fail me.  What a fact-free fantasy,
Sep 4, 2013 3:46PM
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Mirhaydari is bullish.  Since he's a lagging indicator, sounds like it's time to sell.
Sep 4, 2013 4:17PM
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Smoke and Mirrors,

    How nice of the Wall Street bluebloods, the CEO's and the privileged, ensconced in their tailored Zegna suits, Gucci loafers and Mercedes Benz roadsters to tell everyone else that the economy is just peachy.... and getting better by the moment. There seems to be no end in sight of the corporate shills and professional BS artists who write about the economy and the 'mouthpieces' for our esteemed Federal government that tout it's 'continued healthy growth'.

   Perhaps if I was not eating P&J sandwiches, Ramen and pork n' beans most every day, I too would probably believe all of this 'crapola' that is infecting the media like the bubonic plague. Let's get real, the economy sucks for the vast majority of the 312 million average Americans, and it is getting progressively harder for virtually everyone just to keep treading water...let alone get ahead. These pundits and blowhards continue to lie by slathering layer upon layer of lipstick on the pig...but the pig is quite comatose and very near death. Peace to all ~

Sep 4, 2013 3:41PM
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I don't care if it happens tomorrow or September 2014...there WILL BE a blood bath in the markets and people will lose big time. So no, sorry, I'm not buying the rosie picture of the economy taking off...the markets-stocks are way overpriced, we need our correction first... per what Marc Faber stated.
Sep 4, 2013 4:07PM
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Seeing as we just finished our FOURTH (4th) RECOVERY SUMMER, things sure look bleak for a surging economy. And we still have OBAMACARE coming out, that will FIX EVERYTHING!

 

GOING DOWN IN FLAMES.

 

LOCK AND LOAD. The future sure looks bright. LMFAO

Sep 4, 2013 3:38PM
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the economy is burning while the people are yearning? Huh? Is that your stimulus for the day? I'll need to go to the 1% for a loan.
Sep 4, 2013 3:22PM
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STOP BLAMING BARRACK HUSSEIN OBAMA  the anointed one. We all know it was GWB's fault for everything
Sep 4, 2013 3:37PM
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I would love to live in Anthony's world. 
Sep 4, 2013 4:47PM
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Obama is about to start his own personal war and put us further in debt. I have waited seven years and I am still hoping for change. We spent many trillions bailing out wall street and giving away money but I haven't seen any incentives for companies to build factories in the US.

America needs jobs!
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