ISM Chart

Here’s the latest chart on the Institute for Supply Management index:

As I’ve discussed before, this is one of the best metrics for telling us if we’re in a recession or not. Notice how often the recession bars on the chart coincide with low ISMs.
A reading above 50 means the economy is expanding, below 50 means we’re contracting. Yesterday’s reading was 56.3.
Until now, I’ve been a doubter on the Double-Dip hypothesis, but now I think I need to take that scenario a lot more seriously. I still don’t think a second recession is probable, but the odds of one have increased markedly.
Fortunately, the ISM takes some of the worry off. The jobs outlook, however, does not. Despite all the concerns of a Double Dip, the quarterly GDP growth number has dropped from 5% in Q4 to 3.7% in Q1 to 1.6% in Q2.
That’s not good, but it’s (for now) not a recession. I should add that we have been fooled before by a false Double Dip. Let’s take a look at what happened 19 years ago:

GDP growth was negative for three straights quarters (you can’t see Q3’90 of -0.006% but it’s there).Then the economy grew by 2.7% in the third quarter of 1991, followed by 1.7% in Q4 and 1.6% in Q1 of 1992. That’s successively lower growth just like we’re seeing now. Yet, it didn’t lead us to another recession. In fact, it led to four straight quarters of 4% of more growth.
Here’s an AP article from December 1991 titled “National economy stalled on brink of double-dip recession.” This came right as the time the double-dip threat was passing.
I’m not saying that history will repeat itself. I’m merely pointing that a double-dip is certainly possible, we still have a ways to go to get to one.

Posted by Eddy Elfenbein on September 2nd, 2010 at 9:56 am

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