As most US Economic observers know, America is no longer an economy driven by her manufacturing sector. That’s why the ISM Non-Manufacturing Index has become one of our critical macro leading indicators. This morning we saw a sequential downtick (month-over-month) in the Index for the month of July (see chart).
Everything that matters in our macro models happens on the margin. The US market’s negative reaction to this report is well placed.
As you can see in the chart below, since the free money Go-Go days of 2006-2007, this Non-Manufacturing index has had fits and starts – but in the end, has simply made a series of lower-highs. While the Q209’ directional move of going from the toxic to bad was good (see the levels on this chart from late 2008 to Q2 of 2009), what you may be staring at here is an economic picture that simply remains bad.
This morning’s ABC/Washington Post Consumer Confidence report rhymed with what you see in this chart. Although it deteriorated marginally - the point is that on the margin it deteriorated. For today at least, this is new.
I quoted Buffett earlier this week with this, but I think that it’s the most fitting way to end this post:
“Charlie and I believe that when you find information that contradicts your existing beliefs, you’ve got a special obligation to look at it – and quickly!”
Before we all run around taking the Greenspan and rear-view looking economic savants word for it that the recession is over, look at this chart again.
Keith R. McCullough
Chief Executive Officer