The Phaserl


ISM Drops Into Contraction Territory

by Pater Tenebrarum,

PMI Closing in on ‘Recession Warning’ Levels

It was already clear from the various regional surveys that have been published recently that US manufacturing industries have been weakening (a notable exception was the Chicago PMI, which was such a big outlier that one wonders if there was perhaps a data error). The overall ISM PMI index fell to 49, into contraction territory and recording a multi-year low. The details included fairly sharp declines in new orders (-3.5 to 48.8), order backlogs (-5 to 48) and production (-4.9 to 48.6).

It should be noted that in spite of the fact that all of these are now in indicating contraction, the numbers are not yet signaling a recession. However, if a recession were on its way, then such ISM readings would certainly be a way station. In fact, the current numbers are almost precisely identical to those that were recorded at the beginning of the last recession. The main difference is that last time around, the stock market was already looking somewhat wobbly when the ISM components dropped to similar levels. Note however that the generally accepted view at the time was that there would be no recession although it had already begun – a view that continued to prevail for another 8 or 9 months (!).

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