Economically weighted ISM manufacturing + services indexes continue to warrant “recession watch”

 

 - by New Deal democrat

Last month the new orders components of the economically weighted ISM manufacturing and services indexes warranted the hoisting of a yellow flag “Recession Watch.” 

This month that continued.

To recap, because manufacturing is much less important to the economy than in the decades before the Millennium, the economically weighted average of the ISM services index (75%) as well as manufacturing (25%), especially over a three month period, has been much more accurate since 2000.

Last week the ISM manufacturing index for June came in at 49.0, and its three month average was 48.7. The new orders subindex came in at 46.4, and its three month average was 47.1. 

On Thursday the non-manufacturing index was reported at 54.2, and the new orders index at 51.3. The three month average for the headline index was 52.6, and for new orders 50.0.

Here is the manufacturing and services numbers for the past three years:

The economically weighted average for the month of June alone is 52.9, which is well into expansionary range. The average for the past three months is 51.6, which is still expansionary, but weakly so.

The new orders components of both indexes, however, are weaker:

The economically weighted average for June is 50.1, just barely into expansion. The three month average, however, is 49.3, up from 49.0 one month ago, but still contractionary. 

Note that while we came close last summer, at no point did either of the three month economically weighted averages tip into contraction, because the services component was only negative for one month.

In summary, the three month economically weighted average of new orders for the economy as a whole contracted for the second month in a row in June. Thus the “recession watch” caution remains in place. 

To reiterate my caveat from last month, treat the terms “watch” and “warning” the way you would for weather. A “watch” means that conditions are right, and the economy is at significantly heightened risk of a recession starting in the next few months. A “warning” would mean that a recession is likely, and almost imminently.

Last month I concluded this piece with the statement: “In the meantime, watch to see if the remaining short leading indicators to fall into place, most notably new jobless claims, consumer retail spending, employment in the goods-producing sectors, at very least a stalling in aggregate real payroll growth.” While some of those, notably new jobless claims and employment in goods-producing sectors, were positive last month; others - real retail spending, real spending on goods - did turn down, and aggregate real payrolls very likely have done so also, although we won’t know that for another week.

Weekly Indicators for June 30 - July 4 at Seeking Alpha

 

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

There were almost no changes to any of the high frequency indicators in any timeframe last week.

Despite that, below the surface, there has been a very gradual weakening of a number of important indicators in both the monthly and weekly data. 

The last monthly personal income and spending report was negative on both counts, and on Friday the employment report showed one of the weakest private sector gains in employment, outside of the pandemic lockdown months, in the past 15 years (more on which next week). The report was “saved” by seasonally adjusted state and local hiring gains, which probably had to do with the vagaries of the exact date June school years ended this year.

And in the high frequency data, railroad loads and consumer retail spending have continued to trend more or less slightly downward.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a little pocket change for collecting annd organizing it for you.

The American Republic, July 4, 2025

 

 - by New Deal democrat

From the Declaration of Independence:

When in the Course of human events, it becomes necessary for one people to dissolve the political bonds which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the options of mankind requires that they should declare the causes which impel them to the separation.

The history of the present King … is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

He has refused his Assent to Laws… 

He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners …

He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance…

He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures…

For cutting off our Trade with all parts of the world…

For depriving us in many cases, of the benefits of Trial by Jury… 

For transporting us beyond Seas to be tried for pretended offences….

In the past year, the Supreme Court has declared:

That the President is a de facto King, above the law.

That the President’s abolition of birthright citizenship can stand unrestrained.

That the President may arrest and deport people to any third country willing to take them, without any due process.

Jobless claims remain neutral

 

 - by New Deal democrat

In addition to the jobs report, because this is Thursday we also got the latest jobless claims numbers.

To wit, initial claims declined -4,000 to 233,000, and the four week moving average declined -3,750 to 241,500. With the typical one week delay, continuing claims were unchanged at 1.964 million:

The more important for forecasting purposes YoY% changes for once included a positive, as initial claims were down -2.1%. The four week average was higher by 1.8%, and continuing claims were higher by 5.4%:

Because claims for just one week are noisy, this week’s report remains neutral. This is not recessionary, but does not indicate a strong economy either.

June jobs report weakness: not enough for “recession watch,” but not too far away either

 

 - by New Deal democrat



Even before the new Administration took office in Washington, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. That has only intensified by the utter chaos of this Administration, particularly about tariffs. So my focus now is looking for “hard” vs.”soft” data indicating its impact.

While the headline numbers of this month’s employment report were positive to neutral, the underlying component were mainly weak to negative, including several very important ones.

Below is my in depth synopsis.

HEADLINES:

• 147,000 jobs added. Private sector jobs increased 74,000. Government jobs rose 73,000. The three month average increased +3,000 to +139,000, about average for this year, but above the lowest average last summer.
• Within government jobs, Federal jobs declined -7,000, while State jobs increased 47,000 and local jobs increased 33,000 (likely due to education).
• The pattern of downward revisions to previous months was reversed this month. April was revised upward by 11,000, and May by 5,000, for a net increase of 16,000.
• The alternate, and more volatile measure in the household report, rose by 93,000 jobs. On a YoY basis, this series increased 2,211,000 jobs, or an average of 184,000 monthly.
• The U3 unemployment rate declined -0.1% to 4.1%. Since the three month average is 4.167% vs. a low of 4.0% for the three month average in the past 12 months, or an increase of 0.1.67%, this means the “Sahm rule” is not in play.
• The U6 underemployment rate declined -0.1% to 7.7%, down -0.3% from its 3+year high in February.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by 39,,000 to 6.030 million, its highest level since July 2021.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. This month they were mixed, but more negative than neutral or positive:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was unchanged at 41.0 hours, but remains down -0.6 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -7,000. This series had been  in sharp decline, but it has generally leveled off in the past eight months. Nevertheless, with this month’s decline it set a 3 year low.
• Within that sector, motor vehicle manufacturing jobs declined 500.
• Truck driving, which had briefly rebounded, declined another -2,700.
• Construction jobs increased another 15,000.
• Residential construction jobs, which are even more leading, declined -500 from last month’s post-pandemic high.
• Goods producing jobs as a whole increased 6,000 to another post-pandemic high. These jobs typically decline before any recession occurs. But on a YoY% basis, these jobs are only 0.1%, which is very anemic although not necesarily recessionary.

• Temporary jobs, which have declined by over -640,000 since late 2022, declilned again this month, by -2,600, close to their post-pandemic low set last October.
• the number of people unemployed for 5 weeks or fewer declined -210,000 to 2,241,000, vs. its 12 month high of 2,465,000 last August.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.2%, to $31.24, for a YoY gain of just under +3.9%, its lowest YoY% gain in 4 years. Nevertheless, this continues to be well above the 2.4% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers declined -0.6%. This measure up only 0.6% YoY, the 5th lowest reading over the past two years.

• The index of aggregate payrolls for non-managerial workers declined -0.2%, and is up 4.5% YoY. With the exception of January 2024, this is the lowest gain in the past 4 years. Although this remains well above the YoY inflation rate, it has increased only 0.3% in the past three months, meaning it has almost certainly declined in real terms, although we won’t know that until the next CPI is released.

Other significant data:

• Professional and business employment declined another -7,400. These tend to be well-paying jobs. This series peaked in May 2023, bottomed in October 2024, and is up less than 0.3% since then. It remains lower YoY by -0.2%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs.  last spring when it was down -0.9% YoY.
• The employment population ratio was unchanged at 59.7%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined -0.1% to 62.3%, vs. 63.4% in February 2020.

SUMMARY

Last month I wrote that “Although the headline numbers were positive to neutral, this was about as poor a report as could be during an expansion.” If anything, under the hood this month was even weaker.

For the second month in a row, the only reason the unemployment and underemployment rates did not go up was that the labor force participation declined significantly. The employment/population ratio also declined. Further out on the spectrum, those not in the labor force but who want a job increased to the highest level in almost 4 years.

Additionally, most leading sectors declined, including total and auto manufacturing, trucking, temporary help, and residential construction. Professional and business employment also declined, as did government employment.

Perhaps even more ominous, both aggregate hours and aggregate payrolls outright declined this month, even before accounting for inflation. In other words, the American middle and working class as a whole almost certainly saw an absolute decline in their purchasing power last month - something that typically has happened a few months before a recession begins.

What saved this report from being even weaker was (1) state and local government jobs, mainly in education, which almost certainly involves residual unresolved post-pandemic seasonality; and (2) specialty and finishing construction trades, which tend to be later in the construction process. Additionally, the pattern of downward revisions to previous months was broken this month.

Finally, this report was of a pattern with last month’s personal spending report, which showed a decline in the purchases of goods in real terms. Indeed, if construction jobs had turned down, this report would probably have merited going on “recession watch.” We’re not quite there, but we’re not far away either.

JOLTS survey for May still consistent with “soft landing” scenario

 

 - by New Deal democrat

As promised, let me parse the JOLTS survey for May, which was reported yesterday. 

As a quick refresher, this survey decomposes the employment market into openings, hires, quits, and layoffs. In 2024 the data were most consistent with a “soft landing,” but the actions of the new Administration, especially on trade, have exacerbated the fear that this might transform into a “hard” landing, a/k/a a recession.

Yesterday was a good “soft landing” report.

To start, here are job openings, hires, and quits all normed to 100 as of just before the pandemic:

Openings are “soft” data and have generally trended higher going all the way back to the turn of the Millennium. They have remained above their pre-pandemic levels, and this month increased by 374,000 to 7.769 million. Voluntary quits also rose by +78,000 to 3.293 million. On the other hand, actual hires declined by -112,000 to 5.503 million. 

Both hires and quits remain below their pre-pandemic levels, but above their level through much of last year, consistent with a continuation of the “soft landing” scenario as shown in the below graph of the past 12 months:

Now let’s turn our attention to several components are slight leading indicators for jobless claims, unemployment and wage growth.

Recently one item of concern has been layoffs and discharges, which generally have averaged higher since last July. In May, they declined by -188,000 to 1.601 million, one of the three lowest readings since then, and about average since the beginning of 2023:

This is better than both the increase in the unemployment rate over the past year (red, right scale) to new levels in the past year, as well as the recent trends in new and continuing jobless claims (not shown), both of which typically follow with a short lag.

Finally, the quits rate (left scale) typically leads the YoY% change in average hourly wages for nonsupervisory workers (red, right scale):

In May the quits rate rose 0.1% to 2.1%, tied with its highest rate in the past 12 months. Although in the past few months the trend has been a slight improvement, this is still below any post-pandemic reading before last September. Nevertheless, the downshift that began late last summer has not yet been reflected in average hourly wages, which tend to follow with a lag. Thus this continues to suggest that wage growth will decelerate further on a YoY basis over the next few months.

The last few JOLTS reports have all been consistent with the “soft landing” scenario remaining intact through May. Tomorrow we will find out whether the June employment report continues to support this.