the business sector is clearly in recession, as the ism manufacturing index came in at 48.6. anything below 50 means manufacturing is in decline. there was a sharp drop in new orders, again coming in below 50. employment has been below 50 for four months. backlog of orders has been well below 50 for six months. yesterday the ism service index was again below 50 for the month of march.
but corporate america is in much better shape than in the beginning of past recessions. lower inventories, better cash to debt ratios, not as much as excess capacity, and so on. nonfinancial corporate debt is at its lowest level in 50 years, and four standard deviations below the average from 1960 to 2000.
the recession we are now in is a consumer spending led recession driven by a falling housing market which is infecting the entire country. the household sector is in trouble and will most likely remain there for awhile. the combination of falling home prices, the complex problems in the mortgage area, limited financial resources and high debt levels, new constraints and higher costs on consumer installment credit, and probably rising unemployment already sluggish growth and jobs tend to restrain spending by the largest and most important sector of the economy. but i tend to disagree with most on the severity and length of time such problems will be with us.
the condition of the business sector as pictured above is the primary reason for this more hopeful outlook. but we're not japan. i'm not knocking japan; we spend - they hoard and save. these "experts" will be surprised again by the shallowness of the consumer spending recession in my opinion. corporate america will innovate; corporate america will offer deals; and we'll buy, just like we always do.
in the past, bear markets were made by continued earnings disappointments, typically taking at least three difficult quarters to truly disappoint investors. are we just in the early stages? i don't think so. information moves at blinding speed now; volatility levels seen now was unthinkable even 10 years ago; the velocity of change seen now was unthinkable 'back then.' nowadays it seems we are 'punished' swiftly and mighty severely. then, it's over. i'm not categorically stating we head back up here; i'm stating it's my opinion we've seen the lows. some stocks, like the action in homebuilders, seem to be telling us they're already looking into the 2009/2010 time frame. some are calling for "a long summer" - i think this summer's stock market could be surprisingly pleasant.