Manufacturing slowdown vs recession

ON Oct 1, the US Institute of Supply Management Manufacturing data came out much worse than expected, causing a 2-day drop of 2.9 per cent. The figure grabbed financial news headlines, as the release of 47.8 was much worse than the 50.0 expected. Any number below 50 signals contraction in manufacturing.

It seems to be firmly entrenched in investors' minds that the chances of a US recession over the next 12 months is a high probability event. The ISM release further confirmed these fears, lending evidence to the belief that the US economy cannot continue to grow on its own while the rest of the world is in a slowdown or even in outright recession.

Coupled with the yield curve inversion, investors have been raising cash or buying bonds. We have previously analysed the problems with using yield curve inversions to time investments; it simply doesn't work in any reliable manner, despite inversions being called the most reliable indicators of a recession.