Thursday, August 5, 2010
The “Great Recession” didn’t give way to the “Great Depression” – rather it transformed itself into the “Great Stall”. The July ISM data underscored the current circumstance with reported declines in net new orders in the manufacturing and non-manufacturing sectors. It is hard to interpret the ADP reported increase of 42k jobs in July as heralding an upswing in employment, especially when it contains a drop of 21k jobs at goods-producing firms and a decline of 6k jobs at manufacturing firms. Unemployment claims for the week of July 31st are out this morning and have again surprised to the upside. Recognition of sustained low growth, plus the rising risk of deflation inherent with a stalled economy having substantial resource slack, will hit the equity market precisely when the volatility season begins and reaches its peak in October.