Note that the series have been stuck at a reading of 95 point something for the last seven months. We've sen one good increase -- the '5 in July -- but that only returned the series to the levels from May. In addition, we've seen three negative readings in the last seven months.
Let's look at the primary drivers of this slowdown:
I've circled the big contributors to the slowdown. There are two big problems.
1.) Employment: weekly initial unemployment claims are still at weak levels. Consider this chart:
I've drawn a black rectangle around the current level of claims and a red circle around levels we're used to seeing in a recovery. Notice that claims usually move down closer to the 300,000 level when the economy is healthy -- at least that's the level we saw in the 1980s, 1990s and early 2000s. However, now we're seeing claims above 350,000 -- not a health sign.
In addition, we're seeing a weaker manufacturing level. First, this is something both NDD and I have been highlighting pretty frequently over the last few months (see here, here, here, here, here and here). In addition, consider the following charts:
The top chart shows that new orders for machinery are weakening. The middle charts shows that industrial production has stalled, which the bottom chart shows that ISM new orders are showing a contraction.
A lot of the reason for this manufacturing weakness is the EU's recession bleeding over into the US market. But, regardless of the cause, it's not something we need to see right now.