July labour stats in the USA

 I talked about the blip in the US PMI/ISM data here.

These charts show the labour force data.  The first one shows the change in payrolls, the second (from a different survey), the change in the unemployment rate (inverted, because unemployment goes up in recessions and down in recoveries)  In each chart, they are compared with the average of the manufacturing and services ISM surveys, extreme-adjusted.

You can clearly see the post-covid economic recovery in 2021, and then the gradual subsidence as fiscal stimulus wears off, high interest rates take effect, and the post-covid "revenge buying" in services slows.

Will the US go back into recession?  I don't think it will, because recessions occur when there is excess---excess debt, excess inflation, a property crisis, fierce response by central banks, a collapse in consumer and/or business confidence.  But it's relatively easy for slowdowns to happen.   In an uptrend, the economy can advance more or less rapidly, producing mini-cycles.  In recessions, mini-cycles are much rarer.  When the economy plunges, it doesn't pause to take its breath.  

The bottom chart shows the rate of change in my own US leading index, designed to give forward indication of changes in direction in the economy, compared with the year-on-year change in real GDP.   As you can see, the rise in the rate of change of the leading index should be consistent with a rise in GDP growth.  And it is.  Although it is showing a small downturn, indicating a slowing in GDP growth in 2025, it's not pointing towards an imminent recession.  

But my leading index doesn't include any measures of fiscal stimulus.  And that is tailing off:  if you look at the change in the Federal deficit, the IRA led to a big increase in the deficit in 2022, and a modest retracement in 2023.   That would have provided fiscal stimulus in 2022, and fiscal contraction in 2023.  Enough to cause a recession?  No.  But enough to take the shine off the growth numbers.

So, not a recession, but very likely a sluggish recovery, with a short-term blip.

US PMI,ISM composite turns up

As usual, the line to watch is the thick green one, because that's the average of the two time series, which minimises random month-to-month fluctuations.  Clearly, the US manufacturing sector is troughing -- that happens when the PMI or ISM cross the 50% "recession line" on the upside.   

I'm still surprised by how strong the US economy is, given the stringent monetary tightening carried out by the Fed.  "Revenge spending" in services has helped keep the economy afloat.  But the massive fiscal stimulus of Biden's IRA program is prolly more important.  The lesson for me is: don't ignore big fiscal stimuli.  

US PMI/ISM down in October, but trend still up

Despite my forecasts that the US economy would slow sharply after the fastest rise in interest rates and the steepest fall in money supply in 40 years, it hasn't happened.   Growth appears to be accelerating.  (However, my forecast for a European recession, where, unlike the US, there has been no massive fiscal stimulus, is being fulfilled)

It appears that the federal fiscal stimulus is enough to offset the Fed's deep tightening.  So far, at any rate.  US GDP growth is the highest in the G20 GDP growth table from Trading Economics (though some data are only available till June).  Remarkable.  So much for neo-liberalism.  Joe Biden has returned us to the 1945-1984 situation where big government works, where fiscal stimulus and deficit spending is used to reduce the severity of economic downturns.

The chart shows the average of the extreme-adjusted PMI and ISM manufacturing surveys for the USA (the service sector surveys for October won't be available for a few days, yet).  An average of two statistically independent time series will have lower random month-to-month variability than either on its own.  In addition, each series is adjusted for extremes independently before the average is calculated.  This average is shown by the green line in the chart below.  It shows a rebound over the last few months, with a small dip in October.