September ISM = 51.6

Today we got more news that the Double Dip recession still isn’t upon us. The Institute for Supply Management reported that the factory index for September clocked in at 51.6. That was up from 50.6 in August. Wall Street was expecting 50.5.

Any number above 50 means that the economy is expanding; below 50 means it’s contracting. As an economic indicator, I like the monthly ISM for a few reasons. First, it comes out on the first business day of the month. Second, it’s not subject to countless revisions. But I particularly like the ISM because it has a decent track record of lining up with official recessions. Note how well a dip in the ISM lines up with the gray recession bars.

I’ve broken down the numbers and whenever the ISM falls below 45, there’s a very good chance that the economy is in an official recession as declared by NBER, the established recession dating committee.

A reading of 51.6 is hardly outstanding but it does run counter to the nonstop Double Dip fears that have dominated the news lately. Since 1948, the ISM has come in between 50 and 52 a total of 88 times and 28 were recessions.

At the beginning of the year, the ISM came in over 60 for four-straight months and hit some of the highest levels in decades. Then in May and again in July, it collapsed which helped spread the Double Dip fears.

Posted by on October 3rd, 2011 at 10:41 am


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