Today's reports paint a picture of an economy that is struggling, but not likely sinking into recession.
The ISM manufacturing index slipped below 50, but as the chart above suggests, that is still consistent with an economy that is growing at a modest 2% pace. Moreover, some of the weakness was undoubtedly Sandy-related, and should be reversed in coming months.
The Eurozone economy is still shrinking, but manufacturing conditions have improved somewhat on the margin in recent months. This is not a picture of strength, of course, but it does appear to rule out a free-fall.
After being a significant drag on the economy for most of the past six years, construction is now a bright spot. Residential construction is up at a very impressive 33% rate in the past six months, and has risen almost 20% in the past year. It's only a small part of the overall economy (2.6%), but this is a very welcome development. At this rate, residential construction could be adding one-half to one percentage point to annual GDP growth for the foreseeable future.
It's also encouraging that industrial commodity prices have been strong in the past month, as this chart of the CRB Raw Industrial Spot Commodity Index shows. At the very least this suggests that global economic activity is firming, and that provides important support for the U.S. economy. This index is comprised of hides, tallow, copper scrap, lead scrap, steel scrap, zinc, tin, burlap, cotton, print cloth, wool tops, rosin, and rubber, and as such is not likely to be driven by speculative activity.
Auto sales, to be reported later today, are likely to show renewed strength in the aftermath of the Sandy disruption, with a gain of at least 10% over the past year.