The chart shows the extreme-adjusted ISM and PMI for services and manufacturing, and their average (thick pink line). Because the ISM and PMI surveys ask different questions, of a different sample of the relevant populations, on different dates, their average will have a smaller random fluctuation (they are statistically independent). In addition, extreme-adjusting the underlying series removes large "spikes", up or down. The extreme-adjustment in April reduced the downward spike.
What is happening is perfectly clear. The economy was starting a renewed upturn when it was hit by Trump's tariffs. This is just the beginning, as each month of uncertainty worsens confidence and the willingness to spend or invest. Even if Trump wishes to reverse course, confidence has been damaged, and it will take months before it's restored. Also, the economic downturn so far, is before prices have started rising, and before retaliation by other countries. Will the Fed cutting rates help? It also will take time to affect confidence.
My estimate is that the risk of recession, i.e., negative GDP growth is above 80%.
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