There are things going on with the financial markets currently that seem just a bit “out of balance.” For example, asset prices are rising against a backdrop of global weakness, deflationary pressures and rising valuations. More importantly, there is a rising divergence between sentiment and hard data.

For example, on Thursday the Philadelphia federal reserve released their regional survey which showed that manufacturers are the most optimistic in the region in, well, ever. The surge in the “manufacturing” index from 20.7 to 40.8 comes against a backdrop of weaker industrial production during the last 3 months.

However, even more curious was that the surge in the manufacturing survey was offset by Markit's US Purchasing Managers Index which saw a decline to 10-month lows of 54.7 and has, like industrial production, fallen three months in a row. 

Importantly, here are the “key points” from Markit that confirms much of my analysis regarding the impact of a strong dollar/weak global economy combination on u.s. exports.

“Output growth has now fallen for three straight months, taking the pace of expansion down to its lowest since the start of the year. Unlike January, however, this time the weaker rate of growth can't be blamed on the weather.

Export market weakness holds the key to the recent slowdown, with manufacturers reporting the largest drop in export orders for nearly one and a half years.

There's some reassurance from manufacturers continuing to boost their payroll numbers at a robust pace, but with backlogs of work showing almost no growth, the rate of job creation looks likely to moderate in coming months unless new order inflows pick up again.

The manufacturing and service sector PMI data available so far point to GDP growth slowing to around 2.5% in the fourth quarter.”

While weather can't be blamed yet, it will likely be the main “excuse” in the months ahead as early record snowfall is already impacting economic production.

However, it isn't just the manufacturing data that seems “out of whack.” Consumer sentiment about the economy has been surging in recent reports by Gallup, University of Michigan and the Census Bureau.