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We are officially watching for recession now, with mounting manufacturing missteps making the case for it again Tuesday. Too many signs of recession are flashing red now, as we recently warned in our analysis of Leading Economic Indicators. The latest signs Tuesday built upon recent manufacturing sector signals, making a case for a malfunctioning segment of the economy. Stocks took heed, as the SPDR S&P 500 (SPY), SPDR Dow Industrials Average (DIA) and PowerShares QQQ (QQQ) started lower from the moment the economic warning signs flashed Tuesday. The SPY ended the day down 0.86%.

Flashing Red

The Markit Flash U.S. Manufacturing Index and the Richmond Federal Reserve Survey of Manufacturing Activity both flashed red Tuesday, as did the words of a major industrial sector player. But these latest signals were only building on the ISM's Manufacturing Index move under 50.0 in June, to 49.7%, a mark indicating sector contraction. Mayhem has ruled since that July 2nd release, which we called The Report That Shook the World. The Industrial Select Sector SPDR (XLI) is off 2.2% since. Industrial shares have fluctuated, and were down again Tuesday after the latest data, as were the shares of major industrial sector representatives Boeing (BA) -1.2%, General Electric (GE) -0.6% and Caterpillar (CAT) -0.2%. Shares of UPS (UPS) were lower by 4.6%, as the cyclical industrial stock posted earnings two cents short of analysts' consensus, lowered its full-year guidance and said the global economy was deteriorating.

Chart forIndustrial Select Sector SPDR

The Richmond Federal Reserve data followed its brother bank's bad news. The Philadelphia Federal Reserve reported last week that area manufacturing was contracting at a faster pace than economists expected. The Philly Fed's General Business Conditions Index marked negative 12.9, short of the minus 8.0 measure economists foresaw. Still, it was a better reading than its June mark of -16.6.

Richmond reported its Manufacturing Index down to negative 17 in July, from minus 1 in June and +3 in May. Shipments, New Orders, Order Backlogs, and Capacity Utilization all sunk deeply into the red. New Orders is of course especially concerning, as the forward looking measure fell to negative 25 in July, from negative 7 in June. The expectations of respondents to the Richmond survey soured as well, and lagging employment data points started to look troubling. The average workweek index declined to near contraction, while hiring expectations dropped significantly. By my assessment, coming months could very well contribute to the negative employment trends I've been expecting. The Richmond measures seem to show a steady deterioration of the region's manufacturing economy over the last several months, and appear to me indicative of near-term recession.

The Markit Flash U.S. Manufacturing PMI signaled the slowest pace of manufacturing expansion since December of 2010. Export activity is definitely weighing, something I've been warning readers about since the start of the year, and Ben Bernanke mentioned last week in his testimony to Congress. The component index measuring New Export Orders fell to 48.2 from 48.3 in June. Order Backlogs also worsened, to 48.7, from 49.6. Both input prices and output prices indicated contraction at a faster pace, and were consistent with pricing patterns reported by the Richmond Fed. Markit's overall PMI Index kept above water while falling to 51.8, from 52.5 in June. New Orders also expanded at a slower pace, with the component index falling to 51.9, from 53.7 in June.

The trend is clear, and if the two economic reports were not enough, the commentary from UPS' CFO Tuesday should have been. "As we look toward the second half of the year, customers are more concerned as greater uncertainty exists. Additionally, economic growth expectations have come down …" said Kurt Kuehn, UPS' chief financial officer.

The signals are already plentiful, but they are also increasing. Before we recess, we slow, as the American economy is a big ship to turn, barring event catalyst. Some economic indicators are already flashing red for recession, so take heed. We remain on recession watch to report and forecast for the forward looking investor.

Source: Recession Watch: 3 More Signals 'Flash' Red