ISM Manufacturing Index Comes In Well Below Expectations [Dow Jones Industrial Average(INDEXDJX:.DJI), SPDR S&P 500 ETF Trust]

I’ve highlighted the eleven recessions during this time frame and highlighted the index value the month before the recession starts.

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For a diffusion index, the latest reading of 51.3 indicates weak expansion. What sort of correlation does that have with the months before the start of recessions? Here are the eleven data points for the months before recessions arranged in numeric order with the latest data pointed inserted in the sequence (highlighted in red).

42.1, 44.8, 45.7, 47.2, 47.8, 48.5, 49.2, 50.5, 50.7, 51.3, 53.2, 66.2

Today’s reading is near the upper end of the range, with nine lower and two higher.

How revealing is today’s 5.2 point change from last month? There are 793 monthly data points in this series. The average month-to-month point change is 2.0 points. So month-over-month change in today’s headline PMI number is statistically significance.

Here is a closer look at the series beginning at the turn of the century.

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To reiterate the Briefing.com assessment: “The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle.” The ISM reports nevertheless offer an interesting sidebar to the ongoing economic debate.

Note: I use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. The “Peak through the Period preceding the Trough” series is the one FRED uses in its monthly charts, as illustrated here.

This article is brought to you courtesy of Doug Short from Advisor Perspectives.

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