The ISM report, not surprisingly, showed significant weakness in the past month all across the board. The index now reminds me of the opening scene of “Cliffhanger” and is just breathtaking moments away of slipping away into the abyss below.
Hit by weakness in area new orders (which is a poor indication of economic strength to begin with), the index for July came in at a disappointing 50.9 vs what was an inflated 55.3 reading for June. The July index is still above 50 to indicate monthly expansion in business conditions but is now at the slowest rate so far of the recovery.
New orders contracted during the month, coming in at 49.3 below the expansion line of 50 and this sub-50 reading is the first since June 2009. More importantly, backlog orders contracted more deeply, down four points to 45.0 for the lowest reading since April 2009. Low levels of orders point to trouble for all other future readings including for, unfortunately, employment which we will get next week.
Employment, at 53.5, did expand in the month but is well down from 59.9 in June. This is the lowest level for employment since December 2009. Inventory, at 49.3, joined new orders in contraction during July. It was unusual strength in this reading that gave an unsustainable bounce to the composite index for June. Other readings include a slowing in production, a speeding up in deliveries which is a sign of weakness, and a slowing in input price inflation which, though boosting margins, is another sign of economic weakness.
All in all it was a very poor reading and when we get the ISM Non-Manufacturing read later this weak our STA Composite Index will slip into negative territory confirming our data trend that we will be very close to recession by the end of the year without some sort of stimulus program from the Fed.