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In macro, particularly when it comes to probability weighing mean reversion, pictures are often more powerful than prose.

When I look at this 3-year picture of the most important part of the US economy (the non-manufacturing base of business), this is what I see:

1.       A reading of 56 or higher (the red line) = unlikely

2.       A sequential continuation of positive momentum in the V-shaped recovery from the lows (the green V) from here = unlikely

3.       A sequential slowdown from this month’s reading of 55.4 (the blue line) = likely


What never ceases to amaze me is how Wall Street analysts come to consider the unlikely, likely.

The sell-side consensus for the May ISM non-manufacturing reading was 55.6. That estimate implied a higher-high, not only for this stage of the cycle, but beyond the highs of one of America’s most levered up economic cycles (2007).

With all of Asia and Europe slowing, what’s next for this chart? Our bearish positioning and answer to this question are also both implied. US economic growth will slow within 3-6 months; that’s if it’s not slowing here already.



Keith R. McCullough
Chief Executive Officer

ISM: What's Next For This Chart? - ISM Non Manufacturing