ISM Manufacturing Survey Shows Serious Economic Contraction

Not only was the headline number of this morning's ISM report negative, but the internals also showed significant weakness. Of the six components of the report that go back to at least 1970, three of them went from expansive (above 50) to contractionary (below 50) in December. Going back to 1970, on a monthly basis, we calculated the number of components of the index that went from above to below 50 and plotted them in the chart below.

Since 1970, December marked only the fifth time that this many categories of the ISM turned negative during the same month. While this would now seem to imply that calling for a recession is merely a formality, the chart shows that of the four prior occurrences, a recession started within the following six months only twice.

click to enlarge

Comments

[whidbey:]

Yes, it is a different economy this time. The "hidden" weaknesses of personal debt and commercial real estate make this instance much more likely to produce a recession.

That is not all bad, we need to get serious about getting the excesses out of the economy. Let the pain commence!

2008 Jan 03 07:15 PM