The last 24 hours have been rough for economic data both in the US and around the world as most indicators released have been weaker than expected. It started with weaker-than-expected PMI readings for the services sector in China but has since spread to weaker PMI readings for most major economies in the Eurozone as well. Here in the US, PMI data on the services sector will not be forthcoming until tomorrow morning, but Factory Orders released this morning were a big miss. At the headline level, orders for the month of May increased 0.3% which was a half percentage point below consensus expectations. Not only that but April’s reading was also revised down from growth of 0.4% down to 0.3%. After stripping out Transportation, Factory Orders declined 0.5% while April’s reading was revised from a decline of 0.2% down to a drop of 0.6%.

On a year/year basis, Factory Orders also dipped into negative territory for the first time since October 2020. The chart below shows the historical y/y change in Factory Orders since 1960. While readings were negative during every recession, there were plenty of other periods where they also declined on a y/y basis and the economy was nowhere near a recession. Not only that but there were also many other periods during economic expansions where Factory Orders dropped by a much larger amount on a y/y basis.

While the magnitude of the decline in Factory Orders hasn’t been extreme, what is unique about the current period is how long the rate of change in Factory Orders has been declining. The chart below shows streaks where the y/y change in Factory Orders increased (blue line) or declined (red line). With May’s report, the rate of change in Factory Orders on a year/year basis has declined for a record eight straight months, breaking the prior record of seven months that was seen during recessions in the mid-1970s, early 1980s, and during the Financial Crisis. The fact that prior streaks of similar duration all occurred during recessions isn’t exactly reassuring. What makes it less worrisome, though, is that the decline is coming after Durable Goods experienced record growth and consistency of growth coming out of the COVID crash.

There’s plenty of evidence out there to cite as reasons why the US economy is teetering on the edge of a recession or merely in a slowdown, and parts of today’s Factory Orders report could honestly be used to help justify either viewpoint.

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