US still strong

The August PMI (purchasing manager index) and the ISM (institute of supply management) for August showed differing trends.  The PMI (dashed red line in chart below) is falling.  The ISM index  (blue dots) is drifting up.   I watch the average of the two (thick green line).  What it says to me is that the stimulus from Trump's big tax cuts is still playing out.  Fiscal stimulus affects the economy rapidly but also soon stops adding to growth--the lags are short.  The lags in monetary policy are long, anything from 1 to 2 years.  With growth still strong, the Fed is likely to go on raising the Fed funds rate.  Inflation is drifting higher, wage growth (in nominal terms) is drifting higher, and growth is still strong.   The ongoing monetary tightening raises the risk of a recession in 2019.

➥ Both the ISM and the PMI are surveys of "purchasing managers"--executives who order supplies for companies.  If the data are above 50%, the majority of respondents see improving sales, orders, etc.  If they are below 50%, the majority see declining metrics.  The surveys correlate very well with overall economic activity, but are useful because they are released weeks before data such as industrial production or retail sales.