The ISM manufacturing index’s orders-to-inventory ratio has plummeted, and historically when this ratio has been so low then a recession was soon to follow.
Mr. Rosenberg says this means we’re set for the ISM to drop below 50 in the coming months, which would indicate a contraction of manufacturing activity, and is something Deutsche Bank also forecast just last week.
May: 1.44x June: 1.28x July: 1.07x August: 1.03x September: 0.98x
Ouch! Detect a pattern here, folks? The orders-to-inventory ratio is all the way back to January 2009 levels, when the economy was knee-deep in recession. All we can tell you is what the historical record says — at this level in the past, the economy slipped into contraction 75% of the time.
Yet he’s sticking with forecast of sluggish economy growth:
We fully anticipate sluggish economic growth for the remainder of this year and the latest tonnage numbers are reflecting that slowdown.”
So if the economy tanks, he can say the indicator was right, and if it doesn’t, well then he can just point to his base forecast. He’s a true pro.