Wednesday, September 05, 2012

Contagion Risk: US Manufacturing Index Falls

The risks of a global recession have been increasing.

Even the US economy has been feeling the pressure.

From the Northern Trust,

The US Purchasing Managers’ Index (PMI) of the Institute of Supply Management edged down to 49.6 in August from 49.8 in July, the third consecutive monthly reading that is below 50. Readings below 50 denote a contraction in factory activity. Indexes tracking new orders (47.1 vs. 48.0 in July) and production (47.2 vs. 51.3 in July) declined in August. The new orders index stands at the lowest level since April 2009. In addition, the index measuring new export orders (47.0 vs. 46.5) continues to hover below the cutoff mark of 50 for the third straight month. The decline in new orders combined with increase in the inventories index (53.0 vs. 49.0 in July) bodes poorly as it reflects soft demand conditions. The gain in the price index (54.0 vs. 39.5 in July) points to the impact of higher energy prices. The overall tone of the US factory survey of August and below 50.0 readings of the PMI for three straight months raises expectations of additional monetary policy support at the close of the September 12-13 FOMC meeting.

image

A deepening slump will surely add to the justification for the US Federal Reserve to inflate. But this won’t necessarily mean that such programs will reverse the course of the present dynamics. The exactitude, particularly the quantity, of the coming FED program will matter a great deal.

Of course price inflation pressures have been existing amidst the slowdown. Proof of this that gas prices in the US touched three month highs during the labor day.

image

So Fed policies will only complicate matters.

Be careful out there.

No comments: