Besides Politics

While everyone was justifiably focused on the political races yesterday there were other things going on, most notably around the economy. Economists are finally singing from the same song book and it is not a happy tune.

A growing number of top economists believe that the U.S. economy has now toppled into recession. ... The Institute of Supply Management said that activity in the service sector declined for the first time in nearly five years. This report also indicated that employers are cutting staff.

The ISM index tracks activity in the service sector, which is a larger portion of the economy every year. When the index falls below 50, it indicates a decline in the service sector. Yesterday, the index dropped to a very low 41.

Economists took the latest report as a sign that problems are no longer restricted to just housing and manufacturing.

"We're definitely seeing conditions spread to more parts of the economy. The big drop in business activity, that's a huge red flag," said Gus Faucher, director of macroeconomics for Moody's Economy.com.

Meanwhile, Wall Street jolted downward with a 3% fall in all the major indexes and overnight overseas indexes fell.

For some time now the economists have been emphasizing the positives and discounting the negatives but I think they finally realize that most of the signals are trending down.

"That's what recessions do. They come upon you all of a sudden," he said. "When you look back at history, you're struck by how even-keel it is until the bottom just falls out."

Yesterday afternoon Krugman revisited the ISM index and...

The ISM non-manufacturing report came in today, and it’s bad. As I suggested in an earlier post, we should take this seriously: the same report called the upturn in employment in summer 2003, so the fact that it has fallen off a cliff should worry us.

Krugman has a nice graph of the relationships between the ISM index and the monthly change in employment and updates his post with...

Fwiw, the best-fit relationship says that this month’s report portends a loss of 137,000 jobs next month. You don’t want to take that too seriously, but it’s appropriate to cry “eek”.

It is not looking too good folks and even though the U.S. indexes are up some this morning I think it is safe to say we are in for some continuing bad news. The reality is that with Shrub in the White House and the cloud of his massive budget proposal hanging out there there is little good news to hang your hat on.