I described last month’s ISM manufacturing reading as being one “on the cusp of recession”. Well, this month’s reading was even cusp-ier.

To recapitulate, this index has a very long and reliable history. Going back almost 75 years, the new orders index has always fallen below 50 within 6 months before a recession. Recessions have typically started once the overall index falls below 50, and usually below 48.

This is the second straight month that the index was below 50, declining another -0.6 to 48.4. As noted above, per the ISM itself, typically recessions have not begun until this index falls below 48, and as you can see below it came close in 2012 and 2015 without a recession happening. 

Meanwhile, the new orders subindex declined another -2 to 45.2, a new expansion low and the 6th time in the past 7 months that it has been below 50:

(Click on image to enlarge)

Like I said, cusp-ier.

Note that industrial production, the King of Coincident Indicators, has declined in the past two months and looks very much like it has been in the process of peaking (blue the graph below), while manufacturing employment (red) has still been rising as of last month’s jobs report:

(Click on image to enlarge)

I don’t think a recession will start until we see those manufacturing employment numbers starting down. We’ll see in two days.

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