production in January at recessionary levels;  Construction spending also declined in December

– by a New Deal Democrat

The first data for the month of January are, with one exception, quite bad.

The ISM manufacturing index fell from -1.0 to 47.4. According to the ISM, 48 is the line below which it is more consistent with a recession. Even worse, the new orders sub-index collapsed, falling 2.6 to 42.5:

Going back 75 years, the *only* time new orders were this low and a recession didn’t occur was in the middle of the Korean War:

That underscores the focus on the shift in manufacturing employment, which has yet to abate when nonfarm payrolls are reported this Friday.

Construction spending for December was also reported down -0.4% overall (blue) and down -0.3% in the more leading housing sector (red):

The only caveat to this negative news is that the PPI for building materials fell by -1.1% in December, meaning that “real” construction costs increased. Below I show the year-on-year change in housebuilding spending (blue) versus PPI for building materials (gold):

Note that, generally speaking, the cost of materials follows the change in construction with a lag. We had a housing boom; we are now at the beginning of a housing collapse.

I will again watch for a decline in construction employment on Friday.

The December JOLTS report was also released this morning. I will deal with it separately tomorrow, but note that it, unlike the other reports, was quite positive, with a positive turn in vacancies in particular. In contrast, the January ADP personal payrolls number reported this morning was the lowest in over a year at just +106,000. Again on my list for special attention on Friday is whether the slowdown in the quarterly average employment gain from the start of last year continues.

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