It’s a difficult question to answer. We know the US economy is slowing, and the manufacturing activity is already contracting—the first of the four indicators that are used to call a recession—per the ISM’s Manufacturing Diffusion Index.
The ISM’s non-manufacturing Indexes still show growth, which is two-thirds of economic activity, but we are close to that edge, as well.
“The NMI® registered 52.6 percent, which is 3.8 percentage points below the August reading of 56.4 percent,” reports Anthony Nieves, Chair of the Institute for Supply Management. “This represents continued growth in the non-manufacturing sector, at a slower rate. The Non-Manufacturing Business Activity Index decreased to 55.2 percent, 6.3 percentage points lower than the August reading of 61.5 percent, reflecting growth for the 122nd consecutive month. The New Orders Index registered 53.7 percent; 6.6 percentage points lower than the reading of 60.3 percent in August. The Employment Index decreased 2.7 percentage points in September to 50.4 percent from the August reading of 53.1 percent. The respondents are mostly concerned about tariffs, labor resources and the direction of the economy,” said Nieves.
And yesterday’s Associated Data Processing survey came in at 135,000 jobs created, which is a slight downward trend. Just 8,000 jobs were added to the goods-producing sector, whereas 127,000 jobs were added to the service-providing sector, according to ADP.
ADP private payroll survey is usually within 50,000 of the US Bureau of Labor Statistics monthly survey coming out tomorrow, which isn’t much help in predicting the BLS unemployment report.
So there you have it. Employment growth has leveled off. i.e., is no longer increasing. Tomorrow’s report may also show more weakness in job creation.
The 10-year Treasury yield also slipped back into the 1.5 percent range, a sign that there is little demand for credit. Interest rates this low are also a sign of pessimism about future growth, which can be self-fulfilling.
I believe our economy will continue to barely grow, and so avoid an outright recession; at least until next year’s presidential election, when the trade wars might or might not be finally resolved. That seems to be the consensus.
Harlan Green © 2019
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