Are the skyrocketing ISM surveys too good to be true?

The surge in the ISM manufacturing and non-manufacturing indices in September leaves them consistent with annual GDP growth of nearly 4%, but there are some doubts over whether activity really is that strong. In particular, the Markit PMIs have remained more subdued and suggest that growth will do no better than trend sideways over the rest of this year. Both surveys have had a decent relationship with the hard data in recent years. But given the supportive fundamentals – in particular the boost to manufacturers from strong global growth and a weaker dollar – our sense is that the Markit PMIs are being too pessimistic. That’s not to say that growth is about to take off, but we expect it to remain in a healthy 2.5%-3.0% range over the coming quarters.