The US economy is cooling. There’s little doubt about that, but I still don’t think the risk comes so much from the domestic economy as it does from the international economy (unless we get severe austerity cuts in the USA). Remember, we are still running a fairly sizable budget deficit and there have been signs of private sector strength in recent quarters. This is what we should expect during a balance sheet recession. So, growth is stagnant and it’s anything but organic, but it’s also not plummeting. This morning’s ISM Manufacturing report shows that the pronouncements about the death of the US (fake) recovery are premature.
The headline figure came in at 55.3 which was better than the expected figure of 52. The ISM elaborates:
“Economic activity in the manufacturing sector expanded in June for the 23rd consecutive month, and the overall economy grew for the 25th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI registered 55.3 percent, an increase of 1.8 percentage points from May, indicating expansion in the manufacturing sector for the 23rd consecutive month. New orders and production were both modestly up from last month, and employment showed continued strength with an increase of 1.7 percentage points to 59.9 percent. The rate of increase in prices slowed for the second consecutive month, dropping 8.5 percentage points in June to 68 percent. This follows a similar reduction of 9 percentage points in the Prices Index in May, and is the lowest figure since August 2010 when the index registered 61.5 percent. While the rate of price increases has slowed and the list of commodities up in price has shortened, commodity and input prices continue to be a concern across several industries.”
A look under the hood shows a decent report, but not a great one. New orders were up just marginally to 51.6 while backlogs actually contracted. Employment jumped to 59.9 and will bolster the case for a good non-farm payrolls figure next week. Prices continued to back off to 68 from last month’s reading of 76.5. All in all, not a bad and not a great report, but certainly a sign that the US domestic economy isn’t suffering a serious setback (yet).
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.