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Tuesday, September 04, 2012 11:35 AM

Manufacturing ISM Contracts 3rd Month Led by Declining New Orders; Recession-Type Numbers? You Bet!

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Those looking for evidence the US is already in recession (and has been since June) need look no further than the August Manufacturing ISM Numbers released today.

IndexAugustJulyChangeDirectionRate of ChangeTrend in Months
New Orders47.148.0-0.9ContractingFaster3
Production47.251.3-4.1ContractingFrom Growing1
Supplier Deliveries49.348.7+0.6FasterSlower7
Inventories53.049.0+4.0GrowingFrom Contracting1
Customers' Inventories49.049.5-0.5Too LowFaster9
Prices54.039.5+14.5IncreasingFrom Decreasing1
Backlog of Orders42.543.0-0.5ContractingFaster5
Imports49.050.5-1.5ContractingFrom Growing1

Key Points

  • The PMI™ registered 49.6 percent, a decrease of 0.2 percentage point from July's reading of 49.8 percent, indicating contraction in the manufacturing sector for the third consecutive month. This is also the lowest reading for the PMI™ since July 2009. 
  • The New Orders Index registered 47.1 percent, a decrease of 0.9 percentage point from July, indicating contraction in new orders for the third consecutive month. 
  • The Production Index registered 47.2 percent, a decrease of 4.1 percentage points and indicating contraction in production for the first time since May 2009. 
  • The Employment Index remained in growth territory at 51.6 percent, but registered its lowest reading since November 2009 when the Employment Index registered 51 percent. 
  • The Prices Index increased 14.5 percentage points from its July reading to 54 percent. 
  • Comments from the panel generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies.

Recession-Type Numbers

Inventory added .6 to the PMI vs. a neutral reading of 50 or the PMI would have come in at 49.

The third month of declining new orders coupled with declining production strongly suggests that manufacturing employment will soon contract. 

These are start-of recession type numbers.

Unless economic numbers quickly improve, the NBER is likely to backdate the start of the recession to June.

Mike "Mish" Shedlock
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