Two indicators of recent economic activity serve as early indicators: the pair of indexes know as the PMI (purchasing managers’ index). One is for manufacturing (13% of the economy), and the other for services (most of the economy). Both are published by the Institute of Supply Management. Both are giving bad vibrations.
The less significant sector is manufacturing, but it is a better indicator. It moved into negative territory in June: under 50. This was the first time this had happened since July 2009. Especially grim was the decline in new orders. The services index declined in every category, but has not fallen below 50. The supply managers are becoming pessimistic.
Another index that is taken seriously by forecasters is the Philadelphia Federal Reserve Bank’s survey. It showed lower numbers as well.
Its index of current activity dropped from an already negative 5.8 in May to a minus 16.6 in June, with nearly 40 percent of the firms in the survey reporting declines in activity compared to just 22 percent reporting increases. New orders and shipments in the Philadelphia region covered in the report fell 19 and 17 percent respectively, in just one month.
I have been warning about this for a month. I warned my subscribers on www.GaryNorth.com on June 6: “I think the USA will experience a recession, as defined by the National Bureau of Economic Research, beginning sometime before the next President is inaugurated.”
Keynesian economists were caught flat-footed by the ISM report on manufacturing.
Bloomberg surveyed 70 economists prior to the release of the ISM report, and not one of them got it right, with the average of their estimates predicting the ISM index to come in at 52. The actual number of 49.7 was a huge miss.
European manufacturing in the most recent quarter was the lowest in three years.
Auto and light truck sales in the United States are also in decline. Autos were the big growth sector in the first half of 2012.
Other bad signs:
• Consumer spending was revised downward in April to its lowest level in six months;
• Home prices appear to be poised for further declines;
• The commercial real estate market continues to languish;
• Corporate profits declined for the first time in four years, from $16.8 billion in the fourth quarter of last year to a minus $6.4 billion in the second quarter, the largest decline since the third quarter of 2008;
• Job growth is disappointing, having fallen sharply this spring, with expectations that Friday’s report will show job growth at 100,000, way less than needed just to absorb new workers entering the workforce.
The recovery has been the weakest in post-recession American history since World war II. It is about to end. It has already ended in Europe.