BEWARE THE COMING CONTRACTION IN ISM
Surprising weakness in the Philly Fed data startled the market two weeks. As Econoday noted the data was not pretty and likely means the manufacturing sector will show future weakness:
“Manufacturing indications out of the Mid-Atlantic region are decidedly negative for August. The Philadelphia Fed’s general business conditions index fell to minus 7.7 to indicate month-to-month contraction in business activity. New orders, at minus 7.1, show a second straight monthly decline in what is a definitive indication of weakness. Unfilled orders extended a run of declines. Shipments also fell in the month as did employment and the workweek. Inventories also fell while delivery times quickened. Today’s report is significantly weaker than Monday’s soft Empire State report. Together they point to trouble for August manufacturing data.”
There is something potentially more alarming about the Philly Fed numbers when we look under the hood. The Philly Fed’s data is the very highly correlated to the ISM data. The two have shown a near 1:1 correlation over the last decade. Based on recent Philly Fed readings the ISM is likely to take a nosedive in the coming months into contraction territory (sub 50). John Hussman has repeatedly stated that the ECRI data is consistent with mid 40′s ISM readings and a contracting economy. If this correlation holds, the Philly Fed would appear to confirm that:
Source: Danske Bank, Econoday
Great chart. Thanks TPC.
We definitely need some REAL leadership; there is no one out there, except perhaps a Paul Ryan with a little more seasoning. Right now, unfortunately, we are all spectators to an epic destructive battle between the corporate fascists and the redistributive Marxists. I really don’t want either to win.