Previously I have that in the 1992 and 2002 recoveries, the ISM manufacturing index never rose above 53.6, in contrast to earlier recoveries where it quickly rose above 55 or even 60, and prepared a graph showing that an ISM reading of 53 or above strongly correlates with the economy adding jobs. Below that number the economy tends to shed jobs. In the graph, below, the low point for payrolls in each of the last 3 recessions (shown in red, green, and orange, respectively) is normed to 100. A reading of 103, for example, means 3 percent growth in payrolls from that low point. The ISM index is normed so that it crosses the 100 threshold at a reading of 53:
As of August, the index had surged to 52.9. September’s reading of 52.6 suggests that, unfortunately, just like the last two “jobless recoveries”, the index may again stall out at this level.
I have also noted that the employment sub-index compares the percentage of employers planning to hire, lay off, or keep current staffing levels in the next month. A reading above 50 indicates net hiring, and visa versa for a reading below 50. Two items of data in this index stand out very clearly as harbingers of or absolutely coincident with employment growth. First, whenever the hiring vs. firing index is -5 or higher (i.e., no more than 5% more employers plan to fire than hire) and rising, where other evidence indicates a recession is ending, that has always indicated net employment growth was imminent, at least on a temproary basis.Secondly, whenever current staffing intentions were 65+. and hiring plans were 15+, that has always coincided with positive jobs numbers in the BLS survey, including during and after the "jobless recoveries" of 1992 and 2002.
September’s employment index of the ISM deteriorated slightly from August’s. 15% of employers planned to hire, but only 62% held steady, and the net rating was -8.
Putting this together with the September jobless claims data, it appears that, while overall there may have been fewer jobs lost in September, that improvement was probably confined to the service sector of the economy. We’ll obviously find out much more tomorrow.
On the bright side, vendor deliveries slowed, meaning the Leading Indicator part of the ISM index improved.
