One of the themes we have been hearing of late is that stocks, 10% off of their all time highs, are fully reflecting a recession.
That statement turns out to be, um, a tad less than accurate, as was shown by the most recent ISM non-manufacturing Index. Headlines such as Services Data Blindsides Market reveal how little the market actually had priced in even a mild recession, much less a deeper and longer one.
The ISM’s non-manufacturing
index reflects almost 90% of the economy, according to Bloomberg. Consensus expectations of 53% were dashed, as the index plummeted to ~41.0%. to the lowest level since October 2001. If we exclude 9/11, this was the weakest reading since the data began in 1997.
In response, all 10 industry groups in the S&P 500 declined, and the Dow dropped 220 points.
Across the board, the data released was surprisingly weak:
Business Activity Index at 41.9% (consistent with a recession historically)
New Orders Index at 43.5% (fell 10 pts)
Employment Index at 43.9% (An 8 point fall, matching the lowest on record).
Prices Paid remained elevated at 70.7
This is particularly surprising, as we recently learned from the WSJ OpEd pages that The U.S. Economy Is Fine (Really). I haven’t figured out why those pages insist on denying reality, but its their option to live in an alternative universe (Iraq has WMDs, economy is great, etc.)
Complicating matters, the Institute for supply management released a statement saying "The
January 2008 Non-Manufacturing ISM Report On Business® is being
released early today due to a possible breach of information. This
early release time is for today’s Report only."
Here are excerpted comments:
"Recession fears taking hold as cost containment strategies have been dusted off from 2002." (Finance & Insurance)
"Business [is] slow as normal after holiday rush." (Management of Companies & Support Services)
"Oil increases affecting delivery costs and the costs of goods." (Retail Trade)
"Business is tough coming into Q1 after a very tough, unprofitable Q4. Competitive pricing is driving rates to unreasonable levels as competition is over fleeted." (Real Estate, Rental & Leasing)
"… business activity is currently lower than normal at this time." (Wholesale Trade)
January 2008 Non-Manufacturing ISM Report On Business
ISM, February 5, 2008
ISM Services Index Fell More Than Forecast in January
Bloomberg Feb. 5, 2008
Services Data Blindsides Market
WSJ, February 5, 2008 9:59 a.m
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