ISM’s Nasty Little Surprise Isn’t Actually A Surprise

Completing the monthly cycle, the ISM released its estimates for non-manufacturing in the US during the month of June 2021. The headline index dropped nearly four points, more than expected. From 64.0 in May, at 60.1 while still quite high it’s the implication of being the lowest in four months which got so much attention.

Consistent with IHS Markit’s estimates as well as the ISM’s Manufacturing PMI released last week, there are growing (confirmed) concerns that early on in Q2 2021 that might have been the best we’re going to see. This possibility was raised that much more by the nasty little surprise contained within both sets of the ISM PMI’s, manufacturing and non-manufacturing alike.

The subindex for employment is now under 50 for both! Neither is very far below the “magic” dividing line, yet each indicates widespread slowing in employment, wildly deviating from what is supposed to be a robust renewal. And it’s difficult to come out with a labor shortage from the way in which the ISM (or any PMI) gets tabulated (a very small number more responding that they are cutting workers than adding to payrolls).

Rather than a labor shortage, altogether the two ISM’s and especially their employment categories hint at a growing recovery shortage.

And it’s not just something to consider as an isolated case from second tier PMI data, either. As noted last week, underneath the glowing Establishment Survey (and all its massive seasonal smoothing) sits the Household Survey which was negative during the month of June – the same as the ISM’s Employment numbers.

Not just June, though; the HH Survey tends to be noisy as are the ISM component surveys from time to time. But the pattern which has emerged in each is entirely consistent across manufacturing and services, ISM to at least one set of BLS employment data (above).

There was a very clear but short run burst in general activity which boosted the labor market that over the past few months seems to have run out very quickly. This doesn’t mean recession on the horizon; much worse is that this is playing out as exactly the entirely predictable pattern of short run fireworks having no lasting impact.

Uncle Sam came in with huge checks, but then what?

For the second time now (last summer) we’re starting to see how that question is being answered. And the US situation was among the best in the world during this early 2021 burst, meaning that if American fortunes (especially in the goods economy) begin to change as the local sugar high wears off then what does the entire global economy really look like?

Where does the world get any source of re-recovery momentum?

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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