Hard to take a Bone from a Dog

The ISM Manufacturing came above consensus and my own bearish expectations, causing a short-covering rally. There is however ample reasons to believe that the cyclical momentum is still negative.

For one, the ISM components are pointing to weakness going forward. The New Orders-Inventory spread has some leading power over the headline index and it has collapsed:
The non-farm payrolls report was very weak, and the trend NFP growth model is poitning to weakness (55k/month job growth):
The ISM non-manufacturing is pointing to very weak growth:
This leaves us in either slow-growth/muddle-through territory, or will take us to outright recession. It's not conclusive, but warrants caution. The risk is clearly that growth reaches a stall speed , which in itself is dangerous. As someone has recently pointed out, whenever GDP growth drops below 2% in the US, it actually goes down all the way into negative territory (with very few exceptions). And there is every chance that growth will dip sub 2% in the next quarter or two.

Finally, I would like to make reference to a an excellent piece "Hard to take a Bone from a Dog", in which the author points out how difficult, if not impossible it will be for the US government to reform entitlements (medicair/medicaid etc). Maybe the Republican party will need to change their stance on this subject, or maybe they are planning to do so anyhow, and the current episode around the debt ceiling is just posturing.