Recession Confirmed? The Worst News Yet

Mr. ToughMoneyLove is all about the hard truth.  Lately, most of the truth about our economy comes from actual data and data trends.  That truth has indeed been hard to take.

The data reported yesterday from the manufacturing sector may be the worst yet.  (And I am not referring to the free fall in sale of new cars and trucks.)

The Institute for Supply Management (ISM) tracks activity in different components and at all levels of the U.S. manufacturing sector.

Many economists look to the ISM data as a reliable indicator of overall manufacturing activity, particularly the PMI number (formerly known as the Purchasing Manager’s Index). 

The table below reproduces the most recent ISM data released on October 1, reflecting month-to-month changes and rates of change of the key indicators.  Focus on the September PMI number for a second then keep reading.

Index	Sept. ‘08	Aug. ‘08	% Change	Direction	Rate of Change	Trend(Months)
PMI	43.5	49.9	-6.4	Contracting	Faster	2
New Orders	38.8	48.3	-9.5	Contracting	Faster	10
Production	40.8	52.1	-11.3	Contracting	From Growing	1
Employment	41.8	49.7	-7.9	Contracting	Faster	2
Supplier Deliveries	52.5	50.3	2.2	Slowing	Faster	15
Inventories	43.4	49.3	-5.9	Contracting	Faster	3
Customers’ Inventories	53.5	54.5	-1	Too High	Slower	2
Prices	53.5	77	-23.5	Increasing	Slower	21
Backlog of Orders	35	43.5	-8.5	Contracting	Faster	5
Exports	52	57	-5	Growing	Slower	70
Imports	44	48.5	-4.5	Contracting	Faster	8
OVERALL ECONOMY				Growing	Slower	83
Manufacturing Sector				Contracting	Faster	2

 

The economists at the Fed have also focused on the September PMI number, stating: 

“The index now stands at 43.5. Over the past 30 years, index levels below 45 have not failed to be associated with a recession, either contemporaneously or with a short lag.”

In other words, if thirty years of PMI tracking history is any indication, this month’s PMI = 43.5 = recession to follow.

Being someone who relies on data to make decisions, Mr. ToughMoneyLove has to conclude that whatever “rescue” plan makes it out of Congress, it will not cure our economic problem but perhaps only diminish its effects.

I recommend that you stop listening to the politicians, look at this data, form your own judgments, and act accordingly. 

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