Recession Confirmed? The Worst News Yet

October 3, 2008 by  
Filed under Economics

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


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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