As usual, we begin another month and another quarter with important manufacturing and construction data.

The ISM manufacturing 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, and in three cases did not actually cross the line until the first month of the recession itself - although the recession did not begin until after the total index fell below 50, and in fact usually below 48.

In September the overall index declined to 50.9 - just slightly expansionary - and new orders declined to a new post-pandemic lockdown low of 47.1:

This is consistent with readings right before the onset of the Great Recession, but also with several slowdowns that did not quite turn into recessions.

Construction spending, both in total and residential, declined nominally for the seond and third month in a row, respectively:

Again, this is consistent with a recession, but also a slowdown as in 2018.

Adjusting for inflation using the construction materials special index, total construction spending is down about -17%, and residential construction spending down -8% from their respective peaks at the end of 2020:

Note the more leading residential measure has been flat for nearly a year. 

Because construction spending is the “real” economic activity, as is the metric of “housing units under construction” from last week’s permits and starts release, below is a comparison of the two measures measured YoY:

I mentioned last week that housing units under construction looked like it was peaking right now. Since construction spending seems to be coincident with or slightly leading units under construction, this is more evidence that the real economic activity in the leading housing market is at or just past peak. In other words, maybe not in Q3, but from here on in we should expect housing to subtract from real GDP.

More By This Author:

August Personal Income And Spending: Major Downward Revisions Overwhelm Modestly Positive Monthly Grains
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