ISM Report Points to Recession

Here’s something of a newsflash for you: The economy is rapidly slowing down.

That’s the undeniable story from the Institute for Supply Management today as their latest report showed manufacturing had contracted more than forecast.

From Marketwatch by Greg Robb entitled: Factory sector weakens to near seven-year low

The nation’s manufacturing firms were contracting at a much faster pace than expected in September, one of the clearest signs to date that the economy has entered recession territory, according to a closely watched survey of top executives released Wednesday.

The Institute for Supply Management index fell to 43.5% from 49.9% in August, much lower than the 49.6% expected by economists surveyed by MarketWatch.

This marked the sharpest one-month drop in the index since 1984. The index is now at its lowest level since October 2001.

Prior to September, the ISM has been treading water, hovering around 50. This seen as a signal the economy was muddling along. But now economists said there is little chance that months of negative growth can be avoided.

The index is known to be a favorite indicator of Federal Reserve officials. The drop adds to evidence that the economy is slowing enough to bring the Fed off the sidelines to cut its benchmark interest rates below 2% when they meet at the end of the month.

Readings below 50% in the ISM diffusion index indicate that more firms are contracting than growing. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better this month than last.

Only six industries reported improving conditions, while 12 reported contraction.

Norbert Ore, chair of the ISM survey committee, said dramatic decline as seen in September is typically followed by several months of weakness. How long such weakness would last was anyone’s guess, he said.”

By the way, here’s a link to the full ISM Report. It makes for interesting reading.

And if you don’t have the time, it’s summarized by the following chart: