One of the commonly quoted measures of a recession is the ISM Manufacturing data going below a reading of 50. >50 means economic expansion and <50 means economic contraction. Yesterday’s ISM data was soft, coming in at a reading of 50.9 vs. an estimate of 52 and a prior month reading of 52.8. The means the US economy is growing but definitively slowing.
New manufacturing orders were weak, manufacturing prices are slowing, and manufacturing employment just jammed on the brakes – down 5.5 from the prior month and now clearly in contraction territory.
In the coming months, bad news with regards to labor will translate into good news for the markets. A slowing labor market will be strangely good and will be the impetus for the Fed to slow the pace of rate hikes. What the market really is looking for is a big negative reading on job growth across the board. That might be a month or two away but it’s not 6 months away. When that happens, the Fed will “pause”…..and “pause” with regards to rate policy will mean “go” for the markets.
Richard Barrett
Chief Investment Officer
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