Latest / Markets with Megan: A Quick Financial Markets Update / 029: Understanding the ISM Index's Prediction of Recessive Trends 08-01-23

Transcript

029: Understanding the ISM Index's Prediction of Recessive Trends 08-01-23 · Markets with Megan: A Quick Financial Markets Update

• 0:05
  Megan Horneman: Hello, welcome to Markets with Megan.
• 0:07
  Megan Horneman: This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors.
• 0:11
  Megan Horneman: We're going to talk today about the ISM Manufacturing Index which came out, and this comes out at the first of every month.
• 0:18
  Megan Horneman: It could market-moving a indicator because typically, a level of this index below 50 indicates that the manufacturing sector in the US is in contraction territory.
• 0:29
  Megan Horneman: It also tends to be a leading indicator for a recession.
• 0:33
  Megan Horneman: This index was in contraction territory again for the month, so it's been nine consecutive months.
• 0:40
  Megan Horneman: There's only been two occasions going back in history where we've seen this index in contractionary for nine months or more and we haven't seen a recession.
• 0:51
  Megan Horneman: What's more concerning is that every single component of the index is in contraction territory.
• 0:56
  Megan Horneman: We did see the weakest level in prices paid, which is actually good for inflation.
• 1:01
  Megan Horneman: We actually also saw a weak number in the backlog of orders, which can be good for the supply chain.
• 1:08
  Megan Horneman: But what's concerning in this report from the economic standpoint is the employment part of it.
• 1:14
  Megan Horneman: The employment fell the most of all of the components in the index for the month.
• 1:19
  Megan Horneman: It's at its lowest reading now since July of 2020, deeply in contraction territory at a level of 44.
• 1:28
  Megan Horneman: Typically, if you go back to ever since this data series was put together.
• 1:32
  Megan Horneman: When we see this level between 40 and 45, where we are right now, the unemployment rate typically is close to 6%, not anywhere near what we're seeing right now.
• 1:42
  Megan Horneman: It just reiterates that there's more concern for the labor market going forward.
• 1:47
  Megan Horneman: More cracks are emerging and just another reason for us to continue to be cautious going into the second half of this year.
• 1:53
  Megan Horneman: That's all we have today.
• 1:54
  Megan Horneman: If you have any questions or comments, please feel free to reach out to podcastatverdencecom.
• 2:00
  Megan Horneman: Thank you.