Leading indicators suggest troubles ahead for US economy
Just released ISM PMI index fell to 32.4%, lowest since 1980, values below 50 indicate that economy is contracting. There are also two even more worrisome bits of data: new orders index fell to 22.7% (13th consecutive month of decline) which is the lowest readig on record for this index going back to 1948! The ISM Pirces index fell to 18%, the lowest reading for the index since 1949, which indicates possibility of deflation.
In Poland just relased PMI published by RBS/Markit fell to 38.3%, employment, output and new orders posted sharp declines, largest in many years. Also prices dropped despite signifant weakening of the zloty, which indicates that price pressures are receding very fast. I suggested that MPC cut interest rate by 175bp in December to 4%, the did only 75 bp (more than markets expected anyway). Both foreign and domestic data suggest that they should cut by 100 bp in January, but MPC is a prisoner of the gradual approach and is likely to split into two 50s. As I wrote in December I see no value in delaying rate cuts when big credit crunch is coming to town, orders are falling off the cliff and price pressures are yesterday’s story.