ISM Recession Watch: Weakest In Three Years

Is a U.S. recession on the way?  If the Institute for Supply Management’s Report on Business in manufacturing is any key, we are very close.  The PMI (purchasing managers index) came in at 49.7%, under the 50.0 line marking growth or contraction.  Three key observations: New orders and inventories are contracting, while Production and Employment are still growing.  The ISM also noted that supplier deliveries are coming faster.

Today’s reading of 49.7% for June compared to a Bloomberg consensus target of 52.0% and compares to a May reading of 53.5%. This is the first negative reading since July 2009.

• The New Orders Index dropped 12.3 percentage points in June, registering 47.8% and indicating contraction in new orders for the first time since April 2009.
• Production Index registered 51%.
• Employment Index registered 56.6%.
• Prices Index for raw materials decreased significantly for the second consecutive month, registering 37%, which is 10.5 percentage points from May.

This reading may be in the red but it is not really so low that you would call it a formal recession.  The problem is that the numbers are low enough and our recovery was weak enough that the growth we have been witnessing does not give the feeling that we ever really left a recession.

JON C. OGG