On Monday, the Institute for Supply Management's Manufacturing Index for December came in showing contraction for the second consecutive month, and with a slightly worse reading (48.2 percent, versus 48.6 percent in November; any reading below 50 percent signifiies contraction). These two results followed readings which just slipped over the expansion bar (50.2 and 50.1 percent, respectively) in September and October.
The average of the past four months' readings is 49.3. In a situation that was not as troubling in late February 2007, David Leonhardt at the New York Times declared that "For Manufacturing, a Recession Has Arrived." But after yesterday's ISM report, as readers here would sadly expect, no Times reporter bothered to elaborate on the latest in an awful string of ISM manufacturing reports, instead posting wire service dispatches from Reuters and the Associated Press which appear not to have made the Old Gray Lady's print edition.
In declaring a "manufacturing recession" nine years ago, Leonhardt, who is now the Managing Editor of the Times's Upshot blog, blew past an important fact which Reuters managed to report yesterday:
The U.S. Institute for Supply Management (ISM) said its index of national factory activity fell to 48.2 from 48.6 in November and is now at its lowest level since June 2009. While a reading below 50 indicates a contraction in manufacturing, the index remains above 43.1, which is associated with a recession.
Reuters is reminding us that sectors don't go into recessions. Whole economies do. Additionally, you can't really declare that a recession has occurred until two consecutive quarters of net contraction have occurred.
That said, if Leonhardt and the Times were consistent, they would have called what we've seen in the past two months, and arguably four, a manufacturing recession. Let's compare:
(Notes: Revised 2006 and 2007 data was obtained from the St. Louis Federal Reserve; the original February 2007 ISM reading listed above appeared two days after Leonhardt's "manufacturing recession" call.)
But of course, the last thing the Times and Leonhardt care about is consistency. In 2007, they felt that they had a club they could use on the economy during a Republican presidential administration, and ran with it. The fact that ISM's next six readings came in showing expansion — the original readings for February through July 2007 were 52.3, 50.9, 54.7, 55.0, 56.0, and 53.8; the revised readings are somewhat lower, but still well above the 50 percent expansion cutoff — did not cause them to consider correcting their erroneous call. Almost needless to say, a request for a correction of the record filed with the Times in August 2007 went unheeded.
Now in 2015, there is no interest at the Times — or anywhere else in the establishment press — in declaring a manufacturing recession, or worrying at all about the potential of a true, economywide recession, even though warning signs arguably more troubling than those present in early 2007 abound.
Two other sources on whom many people rely have looked at the situation, and have knocked their estimates of growth during the final quarter of 2014 down to well below an annualized 1 percent:
- The Atlanta Branch of the Federal Reserve, after considering ISM's latest report and yesterday's Census Bureau's Construction release (a real piece of work which admitted to presenting erroneous data for the past 10 years), lowered their estimate to an annualized 0.7 percent.
- As reported at Zero Hedge, Deutsche Bank's Joe LaVorgna, a former incurable optimist, has reduced his fourth-quarter growth estimate to an annualized 0.5 percent, and has indicated that "this still might be too high in light of what could be much larger inventory liquidation than what we have assumed." Yours truly has been pointing bloated inventories as a potentially serious problem since last spring.
In early 2007, the press was whispering "recession" almost in unison. The recession didn't officially arrive until December of that year, and as normal people define it (two consecutive quarters of overall GDP contraction), it really didn't begin until the third quarter of 2008, when it became clear that leftist economic nonsense would rule the day if Barack Obama were to become President.
He did. The recession worsened almost immediately after he declared victory. Obama tanked it further with his actions during the presidential transition. His Keynesian "stimulus plan" lengthened it. Obama's policies, combined with the Federal Reserve's "quantitative easing" (i.e., creating trillions of dollars of "money" out of thin air) have led to the nation's worst "recovery" by far since World War II.
Now, after over six years of tepid growth, the dangers of the economy slipping into a recession are legitimate, and most of the business press is still in "all is well" mode.
Cross-posted at BizzyBlog.com.