ISM weighted mfg.+ non-mfg. indexes warrant hoisting a yellow caution flag for the economy
– by New Deal democrat
I’ll spare you the introductory graphs this month, but let me reiterate my opening comments from last month:
I never used to pay much attention to the ISM non-manufacturing report. That is partly because it only has a 20 year history, and partly because it seems to be more coincident than leading, but because manufacturing has faded so much as a share of the US economy, with at least two false recession signal in the past 10 years (2015-16 and 2022-23), there is no choice but to pay more attention.
In particular, it does seem that when we include this as part of a weighted average (75%) along with the ISM manufacturing index (25%), it has generated a much more reliable, and still timely, reading over this Millennium.
On Monday, the ISM manufacturing index, and its more leading new orders component, continued to be negative. In May, the non-manufacturing index this morning completely outweighed that in its strength.
But not today, as the non-manufacturing index and its new orders component both fell below 50 for the first time since December 2022:
Here are the last five months of both the manufacturing (left column) and non-manufacturing index (center) numbers, and their weighted average (right):
JAN 49.1. 53.4. 52.3
FEB 47.8 52.6. 51.4
MAR 50.3. 51.4. 51.1
APR 49.2 49.4. 49.3
MAY 48.9. 53.8. 52.5
JUN 48.5. 48.8. 48.7
And here is the same data for the new orders components:
JAN 52.5. 55.0. 54.4
FEB 49.2 56.1. 54.4
MAR 51.4. 54.4. 53.6
APR 49.1. 52.2. 51.4
MAY 45.4. 54.1. 51.9
JUN. 49.3 47.3. 47.8
This is the second time in three months that the weighted average for the total indexes came in below 50. The more leading new orders index was also below 50 for the first time.
To generate a reliable signal, we would need the 3 month average to be below 50. The weighted average for the total is 50.2. For new orders it is 50.4.
In other words, the signal for the combined weighted ISM indexes remains expansionary – but just barely – in its forecast for the next few months. If it were just a little bit worse, it would be enough, in conjunction with what has been happening with building construction, to hoist a recession watch (note: NOT “warning”!). But it is enough to hoist a yellow caution flag for the economy.
The Bonddad Blog
ISM weighted manufacturing + services indexes signal continued expansion, Angry Bear by New Deal democrat
The ISM(MNM)I is a very important, if not the most important trending economic indicator. After all, this indicator falls during recessions and teleologically actually defines a recession as a recession. It ‘is’ the meaning of ‘is.’
Covid saw the last precipitous drop in the ISM. The ISM June dr/dt is negative and likely heralds the worst kind of a globally US consumer led debt-dependent further precipitous drop in that indicator. At the base of the global asset-debt macroeconomy, US consumer empty savings and further credit card debt at 20 % interest simply cannot sustain continued consumption and growth. To this date the Fed has kept fed fund rates constant because of ongoing housing, rent, and equity inflation. The duration of short term-long term sovereign debt inversion now equals that leading up to the 1929 crash.
Expected the unexpected.
@TEF,
I can’t recall any time in the past 25 years that deficit scolds *haven’t* predicted another 1929 crash. We did have a severe recession in 2009, but it had *nothing* to do with sovereign debt. The dollar is still the world’s reserve currency. Treasuries are still selling. How come people with money don’t see what you see?
Japan has twice the debt/GDP ratio as the US. They’re not in a 1929 depression. Give me data and evidence, not Libertarian bafflegab.
Governments (as long as their currencies are relatively stable) can and will, of mathematically necessity, print their sovereign currencies to maintain economic stability and inflate asset prices to minimize ongoing accumulated debt. Individual citizens, states, local governments, corporations are limited by their inability to print money. At the base of the macroeconomic asset debt system are those citizens and their financial states. The Chinese citizens have had their savings and wealth ravished by a local and national over-leveraged and over-produced real estate debacle – and the Western citizens’ have had their financial well-being negatively impacted by inflation of their credit card debt, their housing, real estate tax, rental, energy, utility, transportation, and food cost – beyond relative increases in wages or pensions. Is the recent ISM data a real time reflection of the ongoing stressors on the consumer citizens at the foundation of the asset-debt system – who cannot manufacture money?
@TEF,
“who cannot manufacture money?”
LOL! The US government creates and destroys dollars every day with computer clicks.
Countries that use the dollar as their currency cannot manufacture money.
Money, like laws and Democracy are all polite fictions that work as long as people believe in them. Same with prophecies of depression. Fictions. I prefer to be guided by facts and evidence, not Libertarian bafflegab. YMMV.
yellow caution flag for whom? what do we do with “caution”? get out of the stock market? lower interst rates? increase the debt (stimulate the economy)? …?