ECRI’s recession call has me looking under rocks to try to confirm a recession is coming. Econintersect’s forward indicators are weak and near recession territory but are in a two month weak upward trend. The ISM non-manufacturing index fell slightly from 53.3 to 53.0 in September 2011.
Above 50, business is expanding. The problem is that the ISM non-manufacturing index (NMI) is so new that its ups and downs cannot be correlated with a long history to the economic situation as it is unfolding.
And this is a survey, a quantification of opinion rather than facts and data. Surveys are notoriously bad at spotting economic turning points. Yet I have hit upon a portion of the ISM non-manufacturing index which has correctly indicated the last two recessions – and has only one false indication. And this portion of the NMI is solidly in expansion territory.
The FRED graph above is for the business activity portion of the NMI. As the USA economy is service sector driven, one would assume the service sector would be a good economic indicator.
Econintersect does give serious consideration to this survey as the service sector accounts for 80% of the economy and 90% of employment – but in a general sense similar to overhearing a conversation at a cocktail party. This is not hard data.
From the ISM report:
The nine non-manufacturing industries reporting growth in September based on the NMI composite index — listed in order — are: Mining; Management of Companies & Support Services; Utilities; Wholesale Trade; Transportation & Warehousing; Information; Construction; Health Care & Social Assistance; and Retail Trade. The eight industries reporting contraction in September — listed in order — are: Arts, Entertainment & Recreation; Educational Services; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Other Services; Accommodation & Food Services; Public Administration; and Finance & Insurance.
WHAT RESPONDENTS ARE SAYING …
“Weak consumer confidence and high gas prices are placing downward pressure on retail sales volume.” (Information)
“Business volume outlook and confidence across many market areas in North America appear to be softening.” (Mining)
“It appears everyone is waiting to see what happens next. No trust in the economy or the federal government to do what is needed.” (Accommodation & Food Services)
“The 2012 outlook is not optimistic; though we keep hoping for a rebound, we see little sign of an improved economy — nothing at least that will spur growth, investment or expansion. Improved investment performance in early 2011 caused us to begin several large capital projects, and although we have broken ground, we cannot help but question if our timing was right.” (Educational Services)
“Third and fourth quarters appear to be slowing down in order volumes. Uncertainty over U.S. and European economy is causing clients to hold off on new orders.” (Professional, Scientific & Technical Services)
“Negative forecast for housing market’s future leads us to think we will be at current levels of business at best for the foreseeable future.” (Wholesale Trade)
Each one of the NMI elements has historically included false movements when the hard data has been issued. The NMI says employment contracted for the month – yet the ADP numbers released today showed clear expansion.
I find myself in the middle, being neither an economic perma-bear or an economic pumper. The New Normal is showing difference faces to the data, yet we mark recessions using the old fashioned GDP. If I were not spooked by ECRI’s recession call – I would not have given this much thought to a relatively untested economic survey.