New PMI Data Points to Red-Hot Economy in 2025

Earnings season provides investors with a treasure trove of new company data … but unfortunately, that data is almost exclusively backward-looking, especially in terms of the overall economy.

That’s why I also keep a close eye on things like manufacturing, since that’s a forward-looking indicator of where companies (and in turn, your stocks) will be headed.

And right now, manufacturing is surging:

Video transcript:

Welcome to Moneyball Economics! I’m Andrew Zatlin, and some really important economic data just came out…

I want to share it with you because it confirms everything I’ve been saying about what has been happening and points to what is about to happen. Cut to the chase: you want to be long the stock market, but let me explain what’s going on. Let me share with you the Zatlin view of where we’ve been the last year.

Go back in time. It’s early 2024. We’re hearing that the Fed is going to cut rates and if you are the CEO of a company spending say a billion dollars or even less, the idea that a rate cut is about to happen is extremely enticing. You spend a billion dollars, that rate cut coming in is going to save you $10 million right off the top. So you’re going to wait and you’re waiting and you’re waiting.

The Fed keeps teasing right around the corner.

Here they come.

Here are those interest rate [cuts].

Oh no, they’re not coming down yet.

This continues into summer holidays and you’ve waited half a year. Nothing’s happened, but because you’re waiting, all that money is now pushed to the sidelines. It’s waiting. Okay?

So you come back from summer vacation, still no rate cuts, but now you’ve got another factor to consider — the presidential election.

You left for the summer, it was Trump all the way. Biden had no chance.

You come back Now Kamala Harris is in the running now. You don’t know what to do.

You haven’t gotten your interest rate cut fed, keeps teasing and now another reason to stay on the sidelines is this pesky election. By the time the Fed does cut rates, it’s too late. You’re now practically into winter, right?

You don’t start projects around holiday season. Who does that?

Get to the election though, and all of a sudden things change. Okay? What’s changed is you’ve got a lot of business sentiment turning positive, a lot of optimism because of Trump. It’s true, but you also have a second reality that’s kicking in your inventories and your equipment need refurbishment and replacement.

See, you’ve waited almost all year. You’ve drained down your inventories. Your equipment’s starting to have problems. You’ve waited and now you can’t wait anymore.

So what you have in January is the combination of a desire to start spending because you’re feeling optimistic and a need to start spending. So let’s combine those two. It means starting in January, the new year, it’s time to start ramping up and that’s what we’re seeing.

So when we closed out last year, fourth quarter, the GDP came down a lot. It was in the 3% zone coming into the fourth quarter, it fell to 2% and what brought it down?

Private inventory investment.

That’s right. Nobody was buying anything. That pent up demand is now getting released. There’s a survey of manufacturers called the ISM PMI manufacturing survey and this is what happened. It came out, anything above 50 is expanding on a scale of zero to 100. So came out a little bit above 50 it moved up, but here’s where it gets really interesting:

PMI Report Surge:
·      Total Index: 50.9 (+1.7)
·       New Orders: 55.1 (+3)
·       New Export Orders: 52.2 (+2.4)
·       Employment: 50.3 (+4.9)

New orders popped up, three points to 55, big jump in expansion, export orders, same thing. Popped up 2.4 to 52 and the kicker employment, which had been crushed for the longest time, hopped up above 50 by almost five points.

Meaning companies have new orders coming in, they’ve got to now build to meet that demand and they need employees and so they are often running and hiring. That’s great news for the labor market because it indicates you’re now at this wonderful inflection point up for the economy.

And remember when all is said and done, you can have a week to week gyration in the market. You can have a lot of things going on, two steps forward, one step back. But this is powerfully optimistic news that the stock market’s going to go up because the economy is growing.

What I just shared with you, the ISM PMI data, that’s not an uptick, that’s not small movement.

That is a surge. That is a big jump. I predicted it would happen in January and it’s got legs. It’s going to continue at least into let’s say may, June. Then we’ll revisit bottom line, the next three to six months.

Incredibly important for the manufacturing sector. And remember, you might not know this, but we are a manufacturing country. We’re huge in that area and when I talk manufacturing, the one place I like to start with to find out if it’s going to be moving up, and I’ve mentioned this before, is the chemical sector.

You want to build a car, you need aluminum sheets, you need aluminum sheets. They have to be anodized. Okay? So we’ve got a leading indicator here because as we move up that food chain, excuse me, backwards in that food chain, you want anodized aluminum sheets. Well now you need nitric acid. Okay? You need a chemical in order to anodize that aluminum.

So when we see the chemical part of the manufacturing sector perking up, that’s when we know they’re seeing a lot of demand and that demand is going to translate in about a month or two into more manufactured goods, which then in a month or two, end up with the end user on the shelves and so forth, okay?

The chemical sector payrolls have been gaining steam the past few months. In the last two months in particular, November and December they expanded. Okay? So this has been a very nice canary in the coal mine.

It tends to lead everything by about six months, given what I told you. You got to start with chemicals and then you make something, blah blah, boom. Next thing you know, you’ve got the finished goods, you’ve got the car. In this month’s ISM PMI report.

There’s a great quote from the chemicals product segment. I want to share it with you, okay? “Customer orders slightly stronger than expected.” Stronger than expected. That’s the key. “Seeing more general price increases for chemicals and raw materials,” okay? Demand is picking up and it’s picking up stronger than expected. That’s a big key, right?

Inventory has been drawn down, it’s going to get replenished, but chemicals aren’t the only sector that reported all this positive news. Lemme share with you a couple more, okay? A couple more areas that were consistently saying thumbs up, everything’s looking really good. So this is one coming.

Let me read to you. “Demand for the first two weeks of 2025 have outpaced normal levels for this period of time.” That’s coming from machinery. Remember I told you we’ve got to replace the raw materials, we’ve got to replace all these inputs and we’ve got to replace equipment. Here’s another quote again, it’s this constant steady, consistent theme.

“Things are better than we expected,” so in this case, electrical equipment appliances, business is slowly improving. Electrical equipment is also seeing a lot of new orders coming from China and Asia. Here’s another one. Capital equipment sales are starting 2025 off strongly. Normally we see a soft start to the new year.

“This year’s strong start is unusual” and that’s coming from the fabricated metal. Sorry, had to read that a little slowly.

Basically again, metals, chemicals, they’re all saying, wow, this is unusually strong right now and common theme, a lot of automotive stuff. And so here we go. “The automotive order demand continues to be consistent and on a steady pace, beginning to look at hiring additional team members.”

That’s what we want to see. We want to see hiring pickup. We want to see the demand. Pickup pricing is holding firm, meaning that they can get what they need. Margins are strong and they’re even having to work over time to cover the plant inefficiencies.

To date, this is coming out of primary metals. Manufacturing is consistently across the board telling us they’re going to be hiring more. They’re going to be producing more. Okay? Now what we are witnessing is partly a resumption of commercial activity that was put on hold last year.

Again, that money was told to sit on the sidelines until rate cuts came in.

But we’re also witnessing the Trump factor at work, and this is only the first month. This is going to continue to gather a lot of steam as we go through the year. As everything firms up for wages, prices, you’re going to see more and more investment.

This economy’s going to take off, get ready for it because it’s going to spill over into a strong and bullish stock market. A lot of stuff there. I’m obviously excited. I’m obviously happy because like you I’m in it to win it. Zatlin out!