Houston, We Have Contraction

Tyler Durden's picture

And so we have recoupling, with the ISM printing below 50 (i.e. contraction) at 49.7 for the first time since July 2009. Expectations of a 52.5 print were obviously blown away, as the final number came well below the lowest Wall Street forecast of 50.5. Prices plunge to 37 on expectation of 57 and there go your corporate margins; Employment down from 56.9 to 56.6, and New Orders implode from 60.1 to 47.8. Epic disaster which proves that no, decoupling, does not exist and now puts the Fed back in play, which however, with the S&P just shy of 2012 highs, can do didley squat.

PMI drops to a contractionary state for the first time since July 2009 with its biggest miss since July 2011.


and the Prices Paid sub-index tumbled to April 2009 levels...


From the respondents;

  • "Business is still strong, with some nagging question whether it will be sustained." (Machinery)
  • "The economy and general business seem to be getting better even though recent data say otherwise." (Fabricated Metal Products)
  • "Significant raw materials price correction underway." (Plastics & Rubber Products)
  • "Local labor market shows no signs of slowing down. Competition for technical services/skilled craft remains tight." (Petroleum & Coal Products)
  • "Overall demand signals from sales forecast are trending down in all regions." (Computer & Electronic Products)
  • "Although our shipments are up year over year and from prior month, we can feel some head winds, especially from Europe. We are watching our expenses very tightly and being cautious." (Apparel, Leather & Allied Products)
  • "Business continues to exceed forecast in all markets." (Primary Metals)
  • "Economy seems to be slowing slightly due to concerns in Europe; however, production has not changed a great deal." (Transportation Equipment)
  • "Business has started to show signs of slowing." (Furniture & Related Products)
  • "Slowing world economies, particularly China, are reducing 3Q and later orders and drastically dropping some raw material prices." (Chemical Products)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ihedgemyhedges's picture


ihedgemyhedges's picture

And exports dive while imports stay level. Jan Hatzius cranking on his 10 key right now figuring his new GDP forecast......

sunaJ's picture

ROFL @ the FED - so muscle-bound, they are paralyzed.  Eventually the legs will give out.

HD's picture


Someone better get Bob Pisani on the phone...

The Monkey's picture

I would hate to be the Fed.

bdc63's picture

? ... I would give my right arm to be the FED ... where else do you get a license to print money? ...

EscapeKey's picture

DJIA rebounding, though this hardly needs saying.

Equities - much like housing - only ever goes up.

Or at least, so the Fed would like you to think.

RmcAZ's picture

Blame this on the weather... it's too hot to manufacture anything.

bdc63's picture

we hope you enjoyed last week's window-dressing special ... and now, back to your regularly scheduled program ...

Quintus's picture

"Houston, We Have Contraction"



I guess the contractions will start getting closer and closer together until.......QE3 pops out.

dexter bland's picture

Its clear there is a global glut of manufacturing capacity and Chinese industrial output is still growing at 10% p.a. (their recent PMI figures do NOT imply contraction - contrary to recent ZH article).

Low value manufacturing in rest of the wrold is in a structural downtrend (this is hardly news.)  In the short term exports are stuffed (again no surprise).

But smell the roses: high demand for skilled employees, strong construction and housing numbers, services sector doing just fine. US seems by far the strongest economy at present.

QE 3 still highly unlikely. Need to find some other rationale to spruik gold.

EscapeKey's picture

Yes, because - much like BLS stats - numbers out of China are completely reliable.

Bunga Bunga's picture

Stores are still full of Chinese crap. So I think the Chinese stats are more reliable than BLS.

Quintus's picture

"...high demand for skilled employees, strong construction and housing numbers, services sector doing just fine..."


Life must be great if your only source of information is CNBC and its stock-spruiking happy-talkers.

Debtless's picture

Hi Tulving? Yes, I'd like to place another order today.

mrktwtch2's picture

call the chinese..ask them how to fudge numbers..lol

Temporalist's picture

Priced into the HFT algos.


Clearly there is much to be bullish of but I cannot find the index for Bank fraud.

RobotTrader's picture

All dips being bought with a vengeance.


Nobody wants to be the fool to miss the 4th intermediate low since the rally kicked off in 2009.

Lots of guys are still piling into bonds, they are barely off the highs.

It's all good.

- Cheap oil.

- Stocks still in an uptrend.

- Lowest interest rates in 60 years.

- Zero inflation

El Oregonian's picture

Did you mean to say "Talk from Sheep"?

azzhatter's picture

zero inflation eh? do you eat?

ihedgemyhedges's picture

Robo's only inflation is the number of down arrows on ZH........as dumpster diving for food is free........

Saro's picture

Don't you know? Robots eat old peoples' medicine for fuel.

Everybodys All American's picture

- No economic growth.

- No job growth.

- No political leadership.



odatruf's picture

It's worse than no political leadership. What we have is a policital system and class who are taking actions that are contrary to the interests of the general population.

I'd take inept over the current corruption any day.

El Oregonian's picture

Washington D.C. and " Prez. ZerO" sounds kind of like the cruise ship "Costa Concordia" and cowardly Captain Francesco Schettino.

Rut-Row, here come the rocks...

Coast Watcher's picture

Well, you got one out of four right. Better than your usual average.

HellZero's picture

stocks up AND bonds up.

How rational

The Monkey's picture

This is a top. We will likely eek a few more points off ES, but earnings and backdrop are not very compelling at these prices.

1400 is a sell on the S&P.

John Law Lives's picture

"Prices plunge to 37 on expectation of 57 and there go your corporate margins."

Ouch!  There is also not a whole lot of fat for corporations to trim these days.

Number 156's picture

Let me know when interest rates go negative.

Temporalist's picture

How do I call you in 2008?

lizzy36's picture

Maybe it is not the fiscal cliff, or uncertainty (when has there ever been certainty), or Health-care, or......Maybe just maybe it is a really shitty economy, the requires far more debt repudiation and the only thing the fed ever accomplished, was making "wealth effect" for the upper 20% at expense of bottim 80%.

azzhatter's picture

Bullish!!! Let's rally

Savyindallas's picture

You don't think the the S&P being 4% under its 4 year highs is enough of a national disaster to justify QE3? THe stock market is the only thing working in this country (Thanks to Ben). If we allow it to drop, we are all surely doomed.

SDShack's picture

Like a scared turtle!

monopoly's picture

Going down, this is the down elevator. Down only!

HaroldWang's picture

But what about Construction Spending?? A miracle that somehow it blows away expectations on a terrible ISM. Good enough to juice the market off the lows. Rally on! Cherry pick your data points.

bdc63's picture

Marc is absolutely right.  And anybody reading Germany's "body language" knows that is the direction they are headed.

The Euro will survive, but all the strong countries are going to abondon it and go back to their pre-millenium currencies.  The Euro will be a bigger joke than the Peso by this time next year.

SeverinSlade's picture

And to think, the entire 100 point rally in the S&P began on a rumor, no action by the ECB, and no QE3 by the Fed...Amazing.

Cursive's picture


You nailed it.  Amazing.  And talking heads wonder why retail "investors" are leaving in droves.

LeisureSmith's picture

 "The economy and general business seem to be getting better even though recent data say otherwise." (Fabricated Metal Products) Fabricating Metal Products, isn't that what the LBMA and Comex is all about. aka. ETF's.

genr8n's picture

Pfff... Rally Rally (risk on ... until Euro announce "agreement" of terms of MoU on 9 July, pass it on)

Flakmeister's picture

It's ok.... the heat wave will stimulate purchase of AC units and those little water sprayers with the battery operated fans, so the economy will be ok...

As an added bonus, rebuilding parts of the grid downed by the Derecho on Friday will also be stimulative...

But seriously, the Heat Index in Aberdeen MS was 136 degrees on Saturday....


aerojet's picture

All the heat index and "real feel" bs is total nonsense--it's the weather industry trying to be as dramatic as possible because only the squeaky wheel gets any attention.  Here's a newsflash--before A/C was invented, the south was a really shitty place to live for most of the year!  It gets hot in land-locked states like MS, it always has, and some years it gets really fucking hot, enough to melt the asphalt.  It has always been this way, it is not some new phenomenon.  What is "new" is that a bunch of assholes are trying to make money off of it selling you dumb ideas.

Flakmeister's picture

So we agree, the South is a shitty place to live...

Not sure how they are making money off this as I didn't know the Dew Point was commercially interesting...

I imagine most Americans think that the Dew point is when their girlfriend starts to get a little moist, if you catch my drift...

PS MS is not landlocked.... 

HaroldWang's picture

Who cares? Apple won the case in China to keep the iPad name. Now that's news!