February 6, 2008 | posted by Michael Baxter in US economy |

 There’s bad, and there’s downright dreadful, and yesterday’s latest economic data on the US fell into the second category. As a result, markets across the world did a nosedive.

These days, of course, we have become used to big daily falls in the stock market, with the Dow Jones falling by more than 300 points no less than five times last year. Even so, yesterday’s fall in the US was a big one, down by 370 points – only twice last year did the index put in a worse performance.

The collapse in shares followed a collapse in an economic index.

The Institute of Supply Management index for tracking non-manufacturing fell from 53.2 to 44.6. ISM indices usually only suffer falls of this magnitude when there has been a major shock, such as 9/11. For the index to suffer this big a slide during times of normal external conditions, is unprecedented.

Any score below 50 indicates that the sectors covered by the index are in recession.

Many economists were struggling to explain the big fall. Capital Economics, for example, said, “Given that the non-manufacturing ISM has typically rebounded almost straightaway from similarly sharp falls in the past, we would need to see at least two months of weak data before giving it much weight.”

It does seem that there is a possibility the US is talking itself into recession. Apparently, only 14.6 per cent of firms covered by the ISM survey said that the credit crunch was affecting their ability to obtain regular or additional financing.

Instead, it seems firms are more worried about the effect of a credit crunch on customers. But as Capital Economics said, “It is odd then that they themselves have been largely unaffected.

Right now, there are lots of oddities about the US economy. Despite the appalling mess of the US housing market, consumer confidence has not collapsed, as you might have expected. As a result of this, last week the National Institute of Economic and Social Research predicted that US growth this year would be above 2 per cent.

And yet, in the final quarter of last year, the US grew by an annualised rate of just 0.6 per cent – that is tiny and barely above recession level.

All we can say is, watch this space as the saga unfolds.