U.S. Manufacturing Contracts for First Time Since 2009

IHS Markit announced yesterday that their U.S. Flash PMI (Purchasing Managers Index) had left growth territory and showed a reading below 50, which is signaling contraction for the sector.

The PMI for the U.S. was 49.9 for the month of August, IHS Markit said in a press release. This is the first time a contraction reading appeared since 2009, when the country was still recovering from a recession.

Fears of the next recession hitting the U.S. and the world have been growing recently, with other indicators also flashing warning signs. The U.S. treasury yield curve, which is the spread between long-term and short-term interest rates, has been showing an inversion, meaning that yields of short-term investment in government bonds are currently higher than those of long-term investments. This, in turn, supposedly shows that investors have been rushing long-term investments in fear of short-term economic collapse, which has pulled down their yield.

Yet, other components of the economy are looking better than they should in the light of an upcoming recession, for example job growth, wage growth and U.S. GDP growth. Some observers have also pointed out that the current inversion of the yield curve in the U.S. is tied to the long period of near zero interest rates around the world, which is causing a rush towards U.S. investments (where there are positive interest rates). They argue that this is what has been pulling down those yields, causing a warped picture of the yield spread not fit as an indicator.