Strategic Briefing | 10.4.2011 | Recession Risk

Still Front End of Recession: A good ISM reading doesn’t change the call
Larry Kudlow (National Review) | Oct 3
The stronger-than-expected ISM manufacturing-index reading for September might normally suggest that the economy, at least for now, has dodged a recession bullet. After zero jobs and zero real consumer spending in August, which put the stalled economy on the front end of recession, the ISM number is the first major September reading. But economist Michael Darda says hold the applause: Inside the ISM, new orders and order backlogs either flat-lined or declined and remain below 50 — the DMZ recession marker on the index. Darda believes weak data in the U.S., plus the ongoing European crisis, plus the China slowdown, plus widened corporate credit spreads and stressful financial conditions, all point to a declining economy and additional stock market drops.


ISM: Manufacturing Gains Remain Modest—Prices Steady
John Silvia (Wells Fargo) | Oct 3
American manufacturing firms continue to align production and employment with a subpar pace of growth in the overall economy… We are sticking with our outlook for a moderate pace of growth for the national economy in the second half. Employment showed a nice gain of 2 points to 53.8 after a drop in August to 51.8, and this intimates a continued string of modest gains in manufacturing jobs going forward. According to the ISM survey, nine industries reported a gain in jobs, including paper, chemicals, transportation and machinery.
Recession Watch: No Evidence Yet of Double-Dip
Mark Perry (Carpe Diem) | Oct 3
All of the variables reported above [industrial production, employment payrolls, real GDP, real retail sales, auto sales, ISM Manufacturing Index, rail shipments, Jeremy Piger's "recession probability"] are positive except for real retail sales. Taken together as a group, these positive indicators suggest that while the current expansion might be sub-par, the economy is certainly not experiencing any of the significant, persistent and widespread declines that would lead the NBER to declare sometime next year that the U.S. economy entered a recession in any of the recent months.
To Cure the Economy
Joseph Stiglitz (Project Syndicate) | Oct 3
The prescription for what ails the global economy follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves. Eventually, the world’s leaders – and the voters who elect them – will come to recognize this. As growth prospects continue to weaken, they will have no choice. But how much pain will we have to bear in the meantime?
Recession Risk Overtaking ’New Normal’: Gross
Bloomberg | Oct 3
Bill Gross, the manager of the world’s biggest bond fund, said the global economy risks lapsing into recession with the pace of growth falling below the “new normal” level the firm has predicted since 2009. “Sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack,” Gross wrote in a monthly investment outlook posted on Newport Beach, California-based Pacific Investment Management Co.’s website today. “If global policy makers could focus on structural as opposed to cyclical financial solutions, new normal growth as opposed to recession might be possible. Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor.”
Manufacturing may help fight off new U.S. recession
Reuters | Oct 3
U.S. factories grew more quickly in September as production and hiring increased, suggesting that manufacturing would help keep the economy from slipping into a new recession. Other data on Monday offered more good news for the troubled U.S. economy, with strong demand for new motor vehicles putting sales on track to surpass August’s rate, and construction spending unexpectedly rebounding in August. “That hardly sounds like an economy flat on its back. The economy is still moving forward. But no one should confuse direction with speed,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
A self-induced recession
Free Exchange (The Economist) | Oct 3
The probability of recession spiked in early August as financial markets around the world swooned and American economic momentum abruptly drained away. Since then, the economic data have not, for the most part, gone into freefall. This morning we learned the Institute for Supply Management’s manufacturing purchasing managers index rose to 51.6 in September from 50.6, modestly better than expected; current production is growing but new orders are weakening slightly. Construction spending was also quite a bit better than expected in August, with across the board strength in residential, commercial and government. Third quarter growth rates have been revised up. Indeed, as this chart from Macroeconomic Advisers shows, consensus third quarter growth estimates between late August and last Friday generally edged higher. Update: U.S. auto sales in September came in above expectations, according to Autodata: 13.1m annualized units, v 12.1m in August.
September 2011 – What Double-Dip Recession Edition
Autoblog | Oct 3
The U.S. auto industry appears to be roaring based on sales figures for the month of September 2011. This, despite every other economic indicator wafting between stagnant growth for the economy and an outright plunge into another recession. Don’t tell the folks selling cars in these great United States, though, because people are buying despite the doom and gloom coming out of Wall Street.

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