ISM Comes In Worse Than Expected

The first business day of 2009 was more than passably strange. Equity markets were buoyant and the news could arguably have not been worse. I tend to ignore the stock market, at least in the short term, so let’s just assume all of the buyers showed up today and the sellers took an extra day off and concentrate on the ISM manufacturing numbers.

In a word they were horrible. They came in below expectations and two sectors-prices paid and new orders-are downright scary. Notably, similar measurements from around the globe are painting the same picture. This chart from Jake at tells all:


No need to go into lots of bloviation about the worst in so many years. This is just plain bad. The WSJ roundup of economists’ reactions to the news found no Pollyanna’s. Here is a sample of the sentiment:

Much weaker than expected report, with the composite index falling another four points to 32.4. Lower levels than this have only been seen in a handful of months during the 1980, 1973-75, and 1948-49 recessions, and the key orders and production gauges hit record lows. The manufacturing sector is clearly in the midst of one of its worst downturns ever. … The weakness in December was nearly as broadly based as it could be, with not a single sector reporting growth. – Morgan Stanley Fixed Income Economics

And finally, putting everything into perspective are a marvelous group of charts compiled by the Council on Foreign Relations. In the interest of respecting the ownership of their work and also not making this post ridiculously long, I won’t reproduce their charts here. The link will get you to them. The charts show a number of economic measurements and how they played out in prior recessions as opposed to their behaviour during this recession. This is the story they tell as interpreted by the researcher who created them:

The current recession is likely to differ from those of the past. Unlike most recessions this down cycle stemmed from an asset market correction that impaired financial balance sheets and froze the credit system – not by monetary tightening. Coincident and lagged economic statistics seem to line up with a typical recession, but forward looking statistics present a picture of continuing economic deterioration.

If it is true that “it is always darkest before the dawn” then daybreak must be very near because these are really black numbers. Maybe that’s what the stock markets are thinking.

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