– by a New Deal Democrat
I described last month’s ISM manufacturing data as “on the brink of recession.” Well, this month’s reading was even more exciting.
To summarize, this index has a very long and reliable history. Going back almost 75 years, the new orders index has always fallen below 50 within 6 months before a recession. Recessions usually begin when the general index falls below 50, and usually below 48.
This is the second month in a row that the index has been below 50, falling another -0.6 to 48.4. As noted above, according to the ISM itself, recessions typically don’t begin until this index falls below 48, and as you can see below, it came close in 2012 and 2015 without happening recession.
Meanwhile, the new orders sub-index fell another -2 to 45.2, a new expansion low and below 50 for the 6th time in the past 7 months:
Like I said, cusp-ier.
Note that industrial production, the king of the matching indicators, has declined over the past two months and looks very much like it was in the process of peaking (blue chart below), while manufacturing employment (red) is still rising from last month’s jobs report:
I don’t think a recession will start until we see those manufacturing employment numbers start to decline. We’ll see in two days.