I occasionally get emails from readers accusing me of immediately positing bad news and totally ignoring good news.
Actually, most days I have no idea what I will even write about. I get emails from all over the world and I wish I had time to write everything up. But I don’t.
Some days I struggle to find anything to write about. On other days, I run out of time. For example, on Tuesday, I wanted to report on the Chicago PMI – bad news. There was so much other news I failed to get it in.
Shortly after midnight (Thursday morning), instead of getting in a report on the Chicago PMI, I decided to post How Americans Came to Die in the Middle East.
This morning, the New York ISM report was horrendous.
Let’s finally take a look at both the Chicago and New York ISM reports, starting with Chicago, the much better report.
Chicago PMI Contracts 6th Time in Last 12 Months
Please consider May Chicago Business Barometer Down 1.1 Points to 49.3.
The MNI Chicago Business Barometer fell 1.1 points to 49.3 in May from 50.4 in April, the lowest level since February and the sixth time it has been in contraction over the past 12 months.
Following the decline in April, the latest results show activity stumbling in the second quarter, following only moderate growth in Q1. Barring a solid revival in June, Q2 could be the weakest outturn since Q4 2015 given the April-May average of just 49.9.
The Barometer’s decline was led by a 6.6 point fall in Production and was accompanied by a mild setback in New Orders, with both falling below 50. While these were the only components that fell between April and May, out of the five components which make up the Barometer, four of them were in contraction. Only Supplier Deliveries was above 50.
Inventories tumbled by 11.7 points to 37.9 in May, the lowest since November 2009 and the seventh consecutive month in contraction. The weakness in inventories could signify uncertainty about future business growth. Supporting this, a special question posed to the Chicago panel in May showed that 68.7% of respondents did not plan to increase business investment over the next six months.
Chicago Business Barometer
Chicago PMI Comments
Chief Economist of MNI Indicators Philip Uglow said, “While expectations are that growth in the US economy will bounce back in Q2, the evidence from the MNI Chicago Report shows activity weakening from an already low level. Firms ran down stocks at
the fastest pace for more than 6 years in May, and while a rebuilding over the coming months could support output, the underlying message appears to be that businesses are not confident about the outlook for growth.”
Chicago ISM Chart
Chart from Bloomberg Econoday, blue trendline by Mish.
Good News
Relatively speaking, that was the good news.
Yet, despite inventory drawdowns, unless Chicago has far better than the national ratios, the inventory-to-sales ratio is extremely high.
Bear in mind, unlike most ISM reports, the Chicago PMI is a mix of both manufacturing and services. That makes matters worse given the emphasis on services.
Shocking Downturn in New York ISM
ISM New York reports Red Flags – Business Activity Contracts at Fastest Pace in Seven Years.
New York City business activity contracted at the fastest pace in seven years, according to the survey taken by the Institute for Supply Management-New York.
Current Business Conditions fell nearly 20 points to 37.2 in May, the weakest reading since April 2009 during the Great Recession.
Labor contracted for the eighth time in the last nine months, while purchase volume declined by the most in seven years. Employment fell to 44.6 in May. Quantity of Purchases dropped to 37.5 in May, the weakest outturn since July 2009. Persistent weakness in the Employment index has coincided with a rising NYC unemployment rate. The losing streak for the Employment index began in September 2015.
New York Region Business Activity
New York Region Employment
New York Region Purchases
Recession?
I keep getting emails about my 2015 recession call. But I see no reason to change the call. GDP and employment are both hugely lagging indicators.
Indeed, GDP is frequently revised years after the fact.
Curiously, the NBER, the official arbiter of recessions, once called a recession after it was over.
GDP Revisions
We have huge GDP revisions in July related to construction spending.
On January 4, 2016, I reported Government “Processing Error” Sinks Housing Reports for Entire Year.
The gist of that report is the government will revise GDP for a decade, in July. The bulk of the revision will add to GDP in 2014 and I believe subtract from GDP in 2015.
I made my estimates on how big the 2015 GDP subtraction will be in Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?
GDP Reports Are Not Reality
At best, GDP reports are hugely lagging indicators. At worst they are total distortions of reality.
Construction Spending In Play Again
Curiously, construction spending is in play again this month. Please consider my June 1, analysis Retail Hiring Slowdown Coming Up: Construction Spending Plunges 1.8%.
March construction spending was revised from a prior reported 0.3% to 1.5%, but the good news stops there. April construction spending declined a whopping 1.8%, the most since January 2011.
Year-Over Year Numbers
The above table from Census.Gov.
The volatility in this series is shocking, but many of the year-over-year numbers look very good.
Homebuilding did improve hugely, but we already knew that from the massive jump in new home sales.
On the negative side, the downbeat trend in business investment reflects on future hiring that will not happen.
Commercial spending is up 5.0% year-over-year. However, this month’s reading of -3.6% is foreboding.
Walmart, Target, and the fast food places will not hire for stores they are not building.
With minimum wage hikes scaling up to $15, and with retail profits collapsing, just why do retailers or fast food restaurants want to build new stores?
To understand how this all ties together, please see Retail Department Store Carnage: Amazon to Blame? Mish 12-Point Summation
It appears the Fed will be hiking rates smack into hiring slowdown (assuming of course the Fed really does hike).
I wish to reiterate two of my comments
- “Walmart, Target, and the fast food places will not hire for stores they are not building.”
- “It appears the Fed will be hiking rates smack into hiring slowdown (assuming of course the Fed really does hike).”
For those primarily watching Illinois, note that despite a Massive Jump in New Home Sales, the Midwest region managed a 4.8% decline in sales.
Mike “Mish” Shedlock
hi Mish, I enjoy reading your blog. Didn’t the Verizon strike cause the sharp drop in the ISM NY index? I think you’re right that the economy is on uneven footing to say the least but it seems there are extenuating circumstances for this data point. Thanks, Paul
The beauty (and the warts) of ISM is that it is a diffusion index.
A small firm counts as much as a bigger firm.
Layoffs of 10,000 can be offset by an employment gain of 5 somewhere else.
the reverse is also true
So … One company cannot skew the results like that.
Mish
This is just a continued intensification of the GRAND GLOBAL DEPRESSION which began in August 2007 and is just as predicted and just as expected. Global debt has soared by more than $60 trillion since 2008 and is now well over $200 trillion as everything just continued to get vastly worse between 2007 and now – and now the debt burden sapping income from other uses has gone from HUMONGOUS to GARGANTUOUS and will continue to get worse as economies continue to slow dramatically as a direct result of all of that financial profligacy and gross irresponsibility over the past 8 years.
As to the Federal Reserve, they only set 3 interest rates and none of those matter a hoot to the US economy and none of those 3 interest rates even have any direct connection to the US economy and the Federal Funds Rate (applicable to overnight interbank borrowing only) and the Federal Discount Rate (applicable to direct overnight lending from the Federal Reserve to banks) are PRACTICALLY NEVER EVEN USED ANYMORE and haven’t been for years as banks are AWASH IN VAST EXCESS FUNDS and the balances in their excess reserves accounts inside the Federal Reserve (where the QE funds are along with their required reserves accounts) now exceeds $2.5 trillion which is where the 3rd interest rate set by the Federal Reserve which is IOER (Interest On Excess Reserves) applies.
All interest rates that do matter to the US economy are directly keyed off the yields in the $12.8 trillion a year US Treasury markets and not at all from the Federal Reserve and those yields (interest rates) will likely be low for some time ahead as the economy continues to slow and as demand for US Treasuries continues to skyrocket upwards which is precisely why those yields are so low and have been so low over the past 8 years.
Where do you think oil prices are going in this environment?
FINALLY, AN IMPROVEMENT IN INTELLIGENT HELP AT WAL-MART
DRONES TO REPLACE WALMART WORKERS
http://www.businessinsider.com/walmart-is-developing-a-drone-2016-6
Are they going to “dronize” the WalMartians too?
I am currently staying in Rockville, MD which is the DC area. The economy here is, needless to say, in great shape, coming, as it does, from lavish spending of the taxpayers’ money. The roads are full of motor vehicles and stores are full of shoppers – in sharp contrast to what I see in Chandler, AZ where I live and everywhere I stopped along the way here.
I think Trump’s real goal should be to ruin the Gaithersburg real estate market… then you know the American people are going to go back toward prosperity.
Trump will be elected and then deposed in a military coup which will be supported by most of the population. I just hope I am around long enough to see his televised execution when it happens.
Donald Trump will become our next President and will be one of the greatest Presidents in the history of the United States and will be elected for a second term in 2020. Donald will work hard to make America great again.
(sarc) 🙂
He needs to focus on “destroying” real estate “markets” much more generally than that, for his presidency to have any shot at being meaningfully beneficial. 2-2.5 times median wage per 700-1000 sqft, and you’re back to an economy strong enough so people can at least afford a roof over their head. Which, given where “we” are currently at, is at least a start.
So to paraphrase: your 2015 recession call is right because GDP will be revised down, and if it isn’t then it doesn’t matter because the measure is total bullshit anyway.
Actually – To dispute your jackass assessment
If and when I am wrong, I will admit it.
Mish
Looking forward to it.
His call was for recession and he made that call in 2015 but did it not have an open end into 2016?
For all the metrics I see and for the job market in electrical engineering it sure looks like we’ve been in a recession since 2008. When it lasts that long it’s really better called a depression.
The GRAND GLOBAL DEPRESSION has been ongoing and intensifying ever since it first started in August 2007, but the good news is that we’re likely to see that stop intensifying and starting to turn around sometime in 2032.
Yes. Mish you are wrong on your recession call. It’s actually a depression and has been since 2008.
Essentially what we have here is 1929 all over again except that the central banks have decided that they will not allow a replay of that — and they have decided to ram trillions upon trillions of dollars into the maw of the beast to keep him from ripping the economy’s head off.
And the end result is that we drive the bubble ever higher so that when it does blow — it brings the end of days.
Of course the central banks have already determined that if they did not act as they have since 2008 the end of days would have come and gone already – and we’d not be here on this site.
This is as good as it gets – so we should be chuffed.
If we can push the day I am forced to eat boiled rat under a bridge off for another month or year… yes please — more of ‘whatever it takes’ to accomplish that
The important thing is that Bernanke had “the courage to act” and therefore pile on another $4T in debt lest we miss the “opportunity” to turn the small grassfire started by Greenspan into the raging inferno that Yellen can now only sit and watch.
Whether Mish is “right” or not, the measure is still nothing but total BS.
People are getting older and more people than anytime in recent history have given up on finding a decent job. Debt burden is reaching epic levels and Millennials are not getting married and living at home. The West are packing their countries with poor unskilled immigrants who jump on social welfare roles. No wonder manufacturing is going down. Only manufacturing that is booming is robots.
I don’t know if there is a recession in the near future, but I know there are big bubbles that are ready to pop.
Part of what’s happening is vendor financing is played out. Used to be firms like GE would bankroll their customers projects. Now that GE bonds are downgraded and government has effectively shut down GE capital (one bail out is enough) the vendor finance game is kaput. Oh yea. Absent this unfair vendor finance advantage my water treatment equipment business is kicking GE’s ass. So there is a silver lining.
“I occasionally get emails from readers accusing me of immediately positing bad news and totally ignoring good news”
When one recognizes that the global economy is propped up only by gargantuan amounts of stimulus…
When one realizes that everything – and I mean everything – ‘positive’ that happens is as a result of this massive stimulus….
When one realizes that if the central banks announced in one hour from now that they were pulling back on stimulus and increasing interest rates even one percentage point….. the entire economy would implode…
The only ‘good news’ would one can speak of would be announcements of more largesse from the central banks.
Because if they were to stop (they won’t) there will be only darkness.
Of course eventually the largesse will push on a string. And that will be the end of days.
Anyone who thinks otherwise is just kidding themselves.
There is now well over $200 trillion in aggregate global debt and that mountain of debt is what is now coming crashing down and the epicenter of that crash is in Asia, particularly in China and Japan.
Mish, there’s a really funny article from long lost Cody Willard over at MarketWatch and I put up a link there to your article here including an assessment of the real state of affairs and the latest New York ISM report.
The economy is booming, the Fed is likely to raise rates, so be bullish
While on a business trip to New York City last week, I was rather surprised at how strong the corporate economy, the start-up economy and the general consumer economy there are.
Sometimes you have to step back and look around you, listen to the people you’re meeting, and accept what you see. I have to say that I see a rather strong economy out there. My analysis continues to point to this economy being stronger than the consensus expects it is, and most signs currently point to the economy continuing to expand, with some acceleration in the employment numbers, too.
http://www.marketwatch.com/story/the-economy-is-booming-the-fed-is-likely-to-raise-rates-so-be-bullish-2016-06-02
Just ignore the data points and ask a cab driver what he thinks. Or a little old lady on the street.
The thing is….
If you asked anyone in 2006 and into 07 what they thought about the economy — you would have been hard pressed to find someone who said it was anything but awesome.
But if you looked under the hood — you’d have seen the engine was about to fall out
Yep.
Employment numbers today are ugly and last month revised downward.
As to the “booming” auto markets, that boom looks more like a bomb blast:
GM sales plunge 18% in May, Ford down 5% – CNBC
http://www.cnbc.com/2016/06/01/may-us-auto-sales-seen-down-on-2-fewer-selling-days-than-year-ago.html
I guess there is a limit to the number of subprime buyers out there after all. (sarc)
My suggestion would be to extend credit to 16 year old’s allowing them to purchase new cars with no money down. As long as they can show proof that they have a newspaper delivery route. Or are working at least 2 hours per week as pizza delivery boys.
That should really give a nice boost to auto sales.
The U.S. dollar is stronger than it’s been in 13 years. – The Week
http://theweek.com/articles/627306/dollar-stronger-than-been-13-years-thats-bad
Further into that Reuters piece it shows car sales (not total vehicle sales) down from 25-39%…
Wow.
It is TRUCK sales that have plummeted precipitously and the large truck market has come to a virtual standstill in 2006 in the US and globally.
It’s amazing how the Reuters article completely ignores the concept of market segmentation. The Cruze dropping 30% with Malibu only rising 13%, it gives you a pretty good idea of what’s happening to the working class. I have an acquaintance working at a Honda dealership in a working-class section of the Chicago. If he really needed the money badly he’d have to find another line of work – the people coming in to shop are so broke calling them sub-prime is an overstatement. You can bet that Government Motors is doing loans that other manufacturers won’t take a chance on. Can’t get a loan on a CR-V? Ford will give you one on an Escape. Can’t get a loan on an Accord or Camry? GM will give you one on a Malibu.
When Ford and GM’s delinquency rates go up in the next 8 months, you’ll know why.
Most cognizant people are looking, watching for signs, indicators as to our economic depression. I have been a small business for over thirty years, designing working for mostly corporate concerns. I claim no insider knowledge at all, only whiffs and tremors. We are super busy right now. So busy that I am concerned (but I’m always concerned), as every time in the past this has usually signaled a coming stall. As a friend pointed out, every time we see the skies full of construction cranes, it is a bad sign.
We know the fundamentals are screwed and all of this is running on borrowed time, we just down how far it will go and how badly it will end. I think the 07/08 was just another drop in a long line of drops that has been “papered” over. Lots of smaller oscillations that are part of a much larger one.
Mike,
Please don’t change the way you bring us the facts. There are too many cheerleaders out there as it is. You are often the only source that reports some of the things I read, and I read quite a bit. Thank you for doing what you do.
David Medlin
Sent from my iPad
>
I hope Janet stops printing. There is too much inflation. Printing doesn’t help anyway. It just misallocates capital, leading to a future banana republic.
I get the feeling Janet will raise rates AND print.
U.S. job growth brakes sharply; unemployment rate falls to 4.7 percent
http://www.reuters.com/article/us-usa-economy-idUSKCN0YO1I8