Jeff Harding: The recent U.S. manufacturing report is at the top of a mountain of bad economic news coming out. Whether these data will lead to a “new” recession (as defined by the NBER) remains to be seen, but at the very least the U.S. economy is stagnating, and it is likely to remain that way for some time. These reports beg the question of what the Fed will do. It also gives us concern that the malaise is spreading worldwide.

The ISM manufacturing report for June was actually quite dramatic in the details. The overall index was down 3.8 % to 49.7 %. Here is the trend:

While the Report stresses that this is the 37th straight month of economic growth, that belies the reality of the current contraction. The most important point here: new orders were down, -12.3%, which is a significant contraction. Other important factors: production -4.6%, order backlog -2.5%, exports -6.0%, inventories -2.0%, and prices -10.5%.

These results are not so much based on exogenous events like the worldwide economic decline, as they are on the U.S.’s own internal dynamics. As we have stressed here, the current economic decline is the logical result of policies implemented by the Fed and the federal government which have had the opposite effect as the planners had intended. The Fed has proven over and over (QE1 and 2, Twist 1 and 2) that economic growth cannot be built on the printing press. Policies that inhibit the liquidation of bad investments by homeowners and banks have drawn this recession/depression out by deterring the formation and investment of new real capital. After all of the unprecedented efforts to revive our economy, the reality of these failed policies continue to reassert themselves.

If there is a better explanation of our current malaise, I haven’t seen it yet.*

I wish to point out that we have been forecasting economic decline to occur at about this point for more than a year now. As it now occurs, it gives me no joy to see that these destructive economic policies continue to be employed toward the same failed result. On the other hand, we feel that our analysis gives valuable information to investors and businesses in their quest to understand current economic events.

The other data that has erupted today are all bad. For example, here are the headlines from today’s Markit reports:

Global manufacturing prices fall at fastest rate for three years :

Global manufacturing conditions deteriorate at fastest rate for three years :

Deteriorating Eurozone manufacturing conditions in June round off weakest quarter for three years:

UK manufacturing input prices fall at fastest pace in three years:

Greek manufacturing sector registers accelerated contraction during June:

China: Sharper declines in output, new business and export orders in June:

US PMI signals weakest manufacturing expansion for 18 months:

These aren’t cherry-picked reports, rather they are a global trend. This is not surprising as we realize that there is almost unanimity, if not international coordination, in the implementation of the same failed economic policies applied in the U.S. There is some fear here that the continued implementation of these policies on a worldwide basis has the potential to create economic consequences that could bring about negative political consequences for the globe. I am not hyperventilating here, but, if these governments continue to apply policies which continue to destroy real capital, it could cause political disruption as citizens globally protest their continued impoverishment. It brings to mind the end of WWII when the world was exhausted of blood, treasure, and spirit. That is, except for the United States which remained a beacon of economic growth that helped propel the free world. If the U.S. is now one of “them” (as I pointed out in my article on the Supreme Court decision which paved the way toward national medical care), then who is left? This is, of course, an oversimplification of a complex problem. But it bears keeping in mind.

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Written By Jeff Harding From The Daily Capitalist

The Daily Capitalist comments on economics, politics, and finance from a free market perspective. We try to present fresh ideas the reader would not find in contemporary media. We like to call it “unconventional wisdom.” Our main influences are from the Austrian School of economics. Among its leading thinkers are Carl Menger, Ludwig  von Mises, Friedrich von Hayek, and Murray Rothbard. There are many practitioners of this school today and some of their blogs are shown on the blogroll. We trace our political philosophy back to Edmund Burke, David Hume, John Locke, and Thomas Jefferson, to name a few.

Our goal is to challenge contemporary economic thinking, mainly from those who promote Keynesian economics (almost everyone) and those who rely on statist solutions to problems. We apply Austrian theory economics to investments, finance, investment risk, and the business cycle. We have found that our view has been superior in analyzing and understanding economic and market forces. We don’t consider ourselves Democrats or Republicans, right wing or left wing. But rather we seek to promote free markets and political freedom.

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