Manufacturing report prompts concerns of recession
Economic problems in Europe, which is experiencing record high unemployment in addition to sovereign debt crises, have caused a lot of concern in markets across the globe. And while our own economic growth in the United States has been less than pleasing, we haven’t felt the brunt of the Europe’s problems — though they are certainly offering a preview of what we can expect.
But there have been concerns that the United States may be slowly slipping into another recession, no doubt made worse by a dismal manufacturing report released yesterday:
The ISM manufacturing index for June came in at 49.7, lower than expected and signaling manufacturing activity has fallen back into contraction territory. That won’t help stocks much.
New orders crashed last month, falling to 47.8 from 60.1, and that’s probably a large part of why the index contracted, given that other measures looked better. As factory activity is often a leading indicator of overall economic momentum, this report is not a good sign for the outlook.
“This is not good. Not good at all,” says Dan Greehaus, chief global strategist at BTIG. ”Despite the decline of manufacturing’s importance to the U.S. economy, the ISM Manufacturing Index remains a premier economic indicator and a reading below 50 in June is incredibly, incredibly worrisome.”
Greenhaus says he isn’t ready to forecast a recession just yet. But that option can’t be completely ruled out. “As more and more weak economic numbers build on each other and indicators such as the ECRI leading index suggest weakness if not recession, investors have to begin, at a minimum, considering the possibility,” he says.
It’s obviously not concrete proof of anything at this point, though it is incredibly concerning; and it’s not what President Barack Obama wants to see just four months outside an election. If the economy doesn’t quickly pick up the pace or some good economic news doesn’t come his way (such as a Friday’s jobs numbers for June), this could turn out to be a real headache.