As the curtain begins to close on the debt-ceiling political theater in which potential disaster was averted, Wall Street’s gaze is now fixed on portents of a global growth slowdown that is reviving fears of recession.
The debt-deal relief rally ended early Monday after the Institute of Supply Management released its manufacturing index, which fell to an anemic 50.9%. Readings above 50 indicate growth and below 50 contraction, so the July figures revealed not just weakness in manufacturing but a marked erosion from June’s 55.3 reading in June.
Further jolting markets, the index of manufacturing activity fell well below consensus estimates of 55 and served as the most recent rebuttal of expectations, or at least hopes, of a strong second half of the year following a disappointing first half. Also, ISM’s New Orders Index registered 49.2, indicating contraction for the first time since June 2009.
The stock market dived last week after a durable goods report showed a 2.1% decline in new orders for June. Economically sensitive durable goods are thought to be a good guide to future economic activity because they include capital goods that companies use in manufacturing.
New orders for nondefense capital goods suffered an even greater decline, 4.1%, in the Commerce Department report released Wednesday. Then, on Friday, the Commerce Department released preliminary GDP results for the second quarter, showing tepid 1.3% growth and revising Q1 GDP from 1.9% down to just 0.4%.