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A public policy blog from AEI
New data suggests the three-year economic expansion — as anemic as it has been — may be at an end, or is at least perilously close. The Institute for Supply Management’s factory index unexpectedly fell to 49.7 in June from 53.5 a month earlier. A reading of less than 50 signals contraction.
Not one of 70 economists interviewed by Bloomberg thought it would be below 50.5.
Here is RDQ Economics:
The drop of 12.3 points in the orders index is the largest since October 2001 (when, in the wake of 9/11, the index dropped 12.4 points) and the second largest decline since December 1980. Thus we are dealing with an event that occurs in roughly one in 100 reports. … Our best guess is that manufacturing growth is downshifting (but still positive as suggested by the relative strength in the employment index) and that commodity prices will stabilize and recover somewhat. However, uncertainty about the state of the economic expansion just got ratcheted up a notch with this report.
Two particularly bad numbers in that report. First, prices paid, which seems to be at recession levels:
Second, that new orders number, also at recession levels after a big drop:
But these numbers are just the latest in a long string of worrisome reports including rising initial unemployment claims, slowing job growth, falling consumer confidence, and declining durable goods orders. Oh, and the rest of the global economy is slowing, too.
The rule-of-thumb recession indicator is back-to-back-quarters of negative GDP growth. But the National Bureau of Economic Research, the group that makes the “official” recession call, uses a broader and more nuanced approach:
It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve’s index of industrial production (IP). The Committee’s use of these indicators in conjunction with the broad measures recognizes the issue of double-counting of sectors included in both those indicators and the broad measures. Still, a well-defined peak or trough in real sales or IP might help to determine the overall peak or trough dates, particularly if the economy-wide indicators are in conflict or do not have well-defined peaks or troughs.
Another big data point coming up is the June employment report out Friday.
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