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Market Morsels: ISM and Recession

The ISM manufacturing survey has been below 50 for 15 months in a row and sits today at 49.1. This survey, along with a lot of other manufacturing data and anecdotes, has been cited repeatedly by the economic bears as evidence we are heading for recession. That, of course, hasn’t happened and that is consistent with this indicator. Yes, below 50 does indicate contraction – of manufacturing. But that doesn’t mean the entire economy is in contraction. Manufacturing is only about 24% of total GDP so it would be hard for manufacturing, by itself, to push us into recession. In fact, manufacturing contraction is usually an effect of the rest of the economy slowing, not a cause of it.

Don’t take my word for it. This is directly from the ISM’s latest release of the manufacturing survey in January:

The Manufacturing PMI® registered 49.1 percent in January, up 2 percentage points from the seasonally adjusted 47.1 percent recorded in December. The overall economy continued in expansion for the 45th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.)

The low for this manufacturing slowdown was 46 in June of last year so we really never even got close to recession. Why? Because the slowdown in manufacturing was driven by the supply chain issues from COVID. And, oh by the way, it’s ending.


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Joseph Y. Calhoun
Joe has worked in the financial services industry since 1992 in various capacities, including Operations Manager, Compliance Manager, Registered Representative and Portfolio Manager. From 1997 to 2006, when he founded Alhambra Investment Management, Mr. Calhoun was a Director of Investments at Oppenheimer & Co. Mr. Calhoun holds the Series 63 (Uniform Securities Agent State Law) and 65 (Uniform Investment Advisor Law) securities licenses. He has previously taken and passed the Series 7 (General Securities Representative) and Series 9/10 (General Securities Sales Supervisor) securities exams. His company is a global investment adviser, hence potential Swiss clients should not hesitate to contact AIP
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