Surely a recession now

The latest employment report for the United States provides the most convincing evidence yet that the economy is in or about to fall into a recession.

On Friday, the Labor Department reported that US non-farm payroll employment fell by 84,000 in August. That was the eighth consecutive month that employment in the US has contracted based on the establishment survey. In addition, revised data show that job losses in the prior two months were 58,000 more than previously reported.

The separate household survey showed an even larger 342,000 fall in employment. Perhaps more significantly, the unemployment rate jumped to 6.1 percent from 5.7 percent in July.

The level of employment in the US in August was slightly below that of the corresponding period last year. Over that period, the unemployment rate has jumped from 4.7 percent -- just above the cycle trough of 4.4 percent -- to the latest 6.1 percent.

Looking at the rising job losses -- and the surge in the unemployment rate in particular -- makes it almost inconceivable that the US economy is not in -- or will not soon go into -- a recession.

And yet, reminiscent of what I pointed out four months ago (see "US employment shrinking but not economic output"), other economic indicators have not been so gloomy. Remember that the economy managed to grow at an annualised rate of 3.3 percent in the second quarter.

And it is not just the second quarter. The latest surveys by the Institute for Supply Management (ISM) are also pointing to some resilience in the economy. The ISM's manufacturing PMI slipped only marginally from 50.0 in July to 49.9 in August (according to the ISM, a PMI over 41.1 generally indicates that the overall economy is expanding). Its non-manufacturing index even improved, rising from 49.5 in July to 50.6 in August.

In fact, in recent months, the ISM indices have generally been fluctuating around the 50 level and have not sustained their earlier downtrends, suggesting that the economy as a whole is weak but not collapsing. At least not yet.

Still, there is little reason to be sanguine. With both manufacturing and non-manufacturing indices at or around 50, it means that the economy as a whole is essentially flat and could easily tip into negative territory.

Meanwhile, other indicators are pointing to further weakness ahead for the US economy.

On Friday, the Economic Cycle Research Institute reported that its gauges of the economy showed little improvement. The weekly leading index rose to 126.3 in the week to 29 August from 125.4 in the previous period. Its annualised growth rate edged up to -11.7 percent from -11.8 percent in the previous week, its lowest reading since June 1980.

Also on Friday, the Organisation for Economic Co-operation and Development (OECD) released its composite leading indicators (CLIs) that showed the reading for the US falling by 0.2 point in July and was 5.0 points lower than a year ago, indicating continued slowdown in the economy.

In fact, the OECD report was quite gloomy. The CLI for the OECD area as a whole also fell, declining by 0.7 point in July 2008 and by 5.2 points from a year ago. The CLI for each and every Group of Seven country was down over July and over the preceding 12 months.

With the US economy nowadays relying so much on trade to maintain growth, the poor outlook for the OECD as a whole means it could get worse for the US.

And that would surely mean a recession.