Inquiring minds are reading the November 2009 Non-Manufacturing ISM Report

Economic activity in the non-manufacturing sector contracted in November after two consecutive months of expansion, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

What Respondents Are Saying …

  • “Capital markets remain very tight; lenders are not releasing funds for development projects, limiting expansion.” (Accommodation & Food Services)
  • “Fourth quarter still looking grim, but potential upturn for Q1 2010.” (Professional, Scientific & Technical Services)
  • “No one trusts that the recovery is real. Seems everything and everyone is in a holding pattern.” (Public Administration)
  • “Business is still flat.” (Wholesale Trade)
  • “U.S. business remains better than 2007 levels, although it’s been through personnel and cost reductions that we are now profitable. Business continues to be about 8 percent below 2008 levels.” (Real Estate, Rental & Leasing)

Non-Manufacturing ISM History

Is This A Recovery?

Take good look at the chart immediately above. After sloshing around $trillions in bailouts and stimulus packages the NMI could barely get above break-even and topped in September.

New orders are up, but much of that is front-loaded government stimulus efforts. With government spending and reflation efforts by central bankers worldwide, it should not be surprising to see prices rising. Yet, employment is not confirming the pickup in business activity.

Double Dip Recession Warning

Paul Krugman is waking up to a possibility that I think is nearly a given. Please consider Double Dip Warning.

I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.

I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.

The chances of a relapse into recession seem to be rising.

Stimulus Fades

Krugman mentioned a couple of articles that show the fading effects of fiscal stimulus. Please consider Job Cuts Loom as Stimulus Fades

Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture.

Tim Word, vice president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, said his income is now coming mostly from projects that are winding up. He said that in normal times he has about $100 million of signed contracts in hand. But that number has fallen to $30 million, and the pipeline is empty. In the past two years, his work force has shrunk nearly 40% to 260 from 420.

“Having something to bid on is the lifeblood of the industry, and it’s running out,” said Mr. Word. He isn’t sure what will happen next year without new projects. “There’s no pavement fairy that’s going to help.”

No Economic Fairies

Not only are there no pavement fairies, there are no fairies of any kind. The idea that Keynesian work projects can stimulate the economy back to a lasting recovery is loony. Japan proved that for two decades, but Keynesian clowns still insist it’s just a matter of throwing more money around until something good happens.

Nothing good happened in Japan from Quantitative Easing or Keynesian stimulus efforts and nothing good will happen in the US from them either. The problem is debt and the cure is paying off that debt, not going deeper into it.

In the meantime prepare for the double-dip or an economic flatline at best because that is how the signs are pointing.

Mike “Mish” Shedlock
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