My grandfather was a Canadian pioneer born in 1900. 1 of 10 kids, he lived in a one-room log cabin in the foothills of the Riding Mountain in Manitoba. He left school in grade three to hunt full time for the family. They founded their homestead by hacking a clearing in the woods with their hands. For Christmas each kid would get one orange in a sock and they were delighted to receive it. During the winter months they would sometimes run empty on the produce they had stored from summer crops and would be left with just potatoes. My grandpa told me the kids jokingly called these dinners “potatoes and point”, because you would eat your potatoes and point for something else but the table was bare.
I am reminded of this story recently with the mounting store of weak economic data. This morning the US ISM manufacturing index for September came in at 54.4 from 56.3 in August and was the lowest for this indicator since September last year. Significantly the new orders sub-component (a leading indicator for future production) fell to its lowest level since June 2009 and the inventory sub-index rose sharply to 55.6 from 51.4, its highest level since 1984. The new orders to inventory spread, which is a useful gauge of future activity, plunged below the zero mark for the first time since February last year, suggesting a very weak outlook for US Manufacturing over the next few months.
Needless to say, it is not just the US that is slowing down. The Bank of Canada yesterday delivered a dour assessment of the Canadian economy. Governor Carney noted “unusual uncertainty” surrounding the economic outlook “warranting caution” as stimulus programs fade and the private sector is not yet picking up the slack. Last month Japan reported a sharp slowdown in growth to just .4% for Q2, and today the UK confirmed a similar trend (discussed in the clip below).
Stock bulls can point to hope saying the ISM above 50 shows an economy still technically in expansion for September. But realistically, it seems that what we have here is just potatoes folks. Its setting up for a pretty tough winter.
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