Stock Bears and the Growth-Is-Too-Good Argument

Many market pundits point to the Institute for Supply Management manufacturing purchasing managers' index as a reason for caution. Growth is just too good, so it can't last, or so the thinking goes. The ISM stands at a historically high level, about a full standard deviation above its long-run historical average. That means economic conditions must deteriorate soon, right? Maybe not.

The ISM manufacturing PMI is easy to follow because of its simple construction. The survey asks about 300 purchasing managers whether activity is up, down, or the same relative to the prior month. A level above 50 is consistent with factory expansion; a level below 50 signals a contraction. The index is timely, released on the first business day of every month, and upon casual inspection, lines up reasonably well with the broad ups and downs of the economy.