Fourth Quarter Is Underway, with Big Trouble on Both the Physical Economy and Financial Sides

Oct. 2, 2019 (EIRNS)—On Oct. 1, the Institute for Supply Management (ISM) issued their purchasing managers’ index for September U.S. manufacturing factory activity, which shrank to its lowest point in over a decade, since June 2009. The manufacturing index fell to 47.8 (anything under 50 indicates an absolute decline), which is worse than August’s sharp contraction and which now makes six months in a row with a falling index.

The stock market tanked in response to the news. Deutsche Bank’s chief economist Torsten Slok commented: “There is no end in sight to this slowdown, the recession risk is real.” Financial media commentary are also alarmed, ascribing the situation to a) U.S.-China trade problems (the index for new overall export orders was 41%, the lowest since March 2009), with upcoming talks scheduled to begin on Oct. 10; and b) the looming Brexit on Oct. 31. The financial sector is also bracing for manufacturing payroll numbers which will be released this Friday, Oct. 4. Reuters reported that “the downturn in manufacturing in the U.S. mirrors similar patterns in the euro zone, Japan, the U.K. and China.”

The ISM itself said the numbers “reflect a continuing decrease in business confidence,” and “global trade remains the most significant issue.” Reuters said that the new manufacturing numbers may force the Fed to lower interest rates at their October meeting. But Chicago Federal Reserve President Charles Evans, speaking in Frankfurt Oct. 1, said the Fed should keep rates as they are now.

Meanwhile, the Brexit deadline is looming. British Prime Minister Boris Johnson unveiled his final Brexit offer to the EU today, but it is not expected to change the fact that the whole situation is headed for a train wreck. As Reuters wrote, “more than three years after Britain voted to leave the EU in a 2016 referendum, Brexit talks are at an impasse.”

The real problem, of course, is that the British establishment refuses to accept an election result they don’t like (as they did with the French 2005 referendum against the EU “constitution”), and are working to reverse the Brexit vote come hell or high water—in much the same way they are trying to reverse the election of Donald Trump.