In a startling combination, US Jobs growth slowed and US Factory Orders went into contraction.
US Jobs growth came in at 315k, well down on the previous strong number, which now clearly looks to have been the aberration.
The trend is most definitely heavy for job growth regardless of the high vacancy levels. Which only serves as testimony to the highly dysfunctional nature of the US workforce and economy overall at the moment. Not to a strong economy.
For some time, I have been warning the USA was beginning a significant and damaging manufacturing slow-down.
We have seen a contraction in Texas and now nationwide New Orders are down 1%. With the previous month’s results also being revised lower.
I expect the manufacturing sector as a whole to experience a sudden and severe slow-down over the coming months. This will be the result of the high build-up of inventories just as the consumer is becoming ever more cautious about the economic outlook.
High inventories, and extremely low consumer confidence, do not a happy ending make for manufacturing.
Stocks appropriately remained heavy on the day and are continuing a rather necessary and significant re-pricing process to much lower levels.
My forecast for another 20% decline from the highs of just two weeks ago, remains in place. The more severe scenario of a further 30% decline from those highs is increasing in probability daily.
Investors worldwide are only just beginning to awaken from their ‘buy the dip’ happy dreams, to a far starker reality.
Investors need to recognise, albeit belatedly, that the world is entering a most challenging period over the next 1-3 years. That this is no short-term correction. That there are very real and monumental economic pressures now at play which remain unstoppable for the foreseeable future.
Investors should be thinking of a slow-moving, but very heavy freight train that is stuck on a downward gradient. The world will not fall apart, but there is significant downside and pain ahead.
For equity markets, and potentially property markets too, to accurately reflect this slow-approaching reality, further declines in prices are warranted.
The good news is that at least modern financial markets afford the flexibility with which to deal with these challenges. Profitability in bear markets is achievable and greatly empowers the long-term capability of investors.
To just watch this slow-moving train just roll over everything they have, is not a winning strategy in the current environment.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
