Manufacturing Growth Hits 2-Year Low

Manufacturing data fell again in July, giving ammunition to the thesis that the economy is turning back toward recession. The Institute for Supply Management, a purchasing executives trade group, said Monday that its index of manufacturing activity fell to 50.9 percent in July, barely registering as "growth". Any number above 50 percent works out to growth; the higher the number, the more the sector is growing. Overall, the manufacturing sector did reports its 23rd straight month of growth — the exact amount of time that the economy has been officially out of recession. Despite the growth, new sales orders were down sharply, and other numbers from the survey suggest that the current quarter may yield bad results. "The ISM manufacturing report for July is a shocker and strongly suggests that the disappointing performance of the economy in the first half of the year was not just temporary," said Paul Dales, a senior U.S. economist for Capital Economics. Overall, it has been a rough few months for manufacturing. The Japanese earthquake/tsunami/nuclear holocaust led to a parts shortage, disrupting automakers' supply chains, cutting into the output of new cars. High gas prices left Americans stranded with few dollars to spend on discretionary items. Employers have responded to the downturn predictably, pulling back on hiring. The economy added just 18,000 net jobs in June, the fewest number of jobs in nearly nine months. Unemployment rose to 9.2 percent. ACTION ITEMS:

Bullish:
It is hard to see how this is bullish for much of anything, except probably gold. Investors could consider gold-based ETFs such as GLD, GDX, and GDXJ. Bearish:
The stock market is starting to signal that the economy is facing serious headwinds. Traders looking for more downside could buy inverse ETFs such as ProShares UltraShort S&P SDS, ProShares UltraShort Russell2000 TWM and ProShares UltraShort QQQ QID.