3rd July 2012
The slowdown, combined with global weakness in Europe and Asia looks to have increased the likelihood of a recession in the U.S.
Adolfo Laurenti, senior economist at Mesirow Financial, said he believes the odds of a recession have climbed to 25% after the ISM report, up from 15% earlier.
"Investors have to begin, at a minimum, considering the possibility" that the U.S. could succumb to a double-dip recession in the second half of the year, said Dan Greenhaus, chief global strategist at BTIG.
Even though the 49.7 reading doesn't indicate that the economy is in a recession, it does continue a trend of lackluster economic indicators that haven't helped President's Obama's re-election message that things are getting better for the American people.
If conditions improve, it could bode well for Obama, but it's unwise to assume that the average voter will keep a pulse on the overwhelming number of economic indicators due out before the election, writes Joe Deaux of The Street.
"The problem that Obama faces with voters is they don't have confidence in his economic plan, or his background, so they're rooting for him to succeed, but they don't know that he's got the goods to do it," said Glenn Bolger, a Republican pollster at Public Opinion Strategies.
Bolger continued:"I'm not sure voters felt in 1980 or 1992 that [Ronald] Reagan and [Bill] Clinton were better options, but they were at a point where they said, 'You know, we've given this guy four years, and things aren't getting better … so it's time for a change.'"
Could the ISM report set the stage for a third round of quantitative easing (QE3) by the Federal Reserve? UniCredit's chief U.S. economist, Harm Bandholz, seems to think so:
"Immediately after the report was released, the price of gold started to rise. And even as the jump was only short-lived and has already been reversed again, the message is clear: The market thinks that the growing number of weak economic reports for the US in combination with lower inflation numbers (here: prices paid) may trigger another round of asset-purchases by the Federal Reserve (QE3)."
"We do not think that we are there (yet). Before the Fed uses its last "bazooka" we probably would need to see another two employment reports or so that are even weaker than the ones for April and May. After all, the ISM report – as important as it is – is still only a survey. Already in each of the last two years we witnessed pronounced declines in business surveys that clearly exaggerated the weakness in the overall economy. As there have been no obvious shocks that can explain such a plunge in the ISM between May and June, we therefore take the report with a grain of salt – but we do not ignore it."
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