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Vince Farrell: Crunch the Numbers Before You Cry Recession

Warren Buffett says there is no recession and he is buying stocks. In fact he bought some $4 billion in stocks recently. Wouldn't you like to buy 4 billion anything?

The Economic Cycle Research Institute, ECRI, says there is a recession looming. Lakshman Achuthan runs the shop and is good as there is. His group correctly called the last three recessions . If he says so then I am nervous. No one is infallible but some guys are more infallible than others. (Some are uniquely fallible, but we know who you are!)

But Lakscham was on the TV last week and made a very coherent and compelling case. Goldman Sachs says we are not there yet and their base case is for slow growth. But if recession, and odds are growing for one they feel, then unemployment could hit 12 percent. I confess to being confused by a flat base case and then maybe 12 percent unemployment. There would have to be some measure of depth of the recession, but, whatever. The point is well made that if we have a recession, the economy is weak going into it and it'll be hard and discouraging.

As for me (and don't worry if you don't care what I think. I don't care what I think.) I don't see us in the soup yet.

This morning the Institute for Supply Management, ISM, reported better than expected numbers for August with a reading of 51.6. Estimates had been for 50.4, although how you can estimate this stuff month to month confounds me. Nevertheless, it is the third month in a row of a number better than 50 and would indicate GDP growth of about 2 percent. Sluggish and vulnerable, but not off a cliff yet.

Since it's Monday and optimism is supposed to abound, the employment number within the ISM was encouraging at 53.8 compared to 51.8 last month. Last Friday's Chicago PMI (same as an ISM for our purposes) was a surprise 60, so we had guessed that today's national ISM could be better.

Construction spending was also better with a reading of +1.4 percent and the guys had guessed -.4 percent. But this number is very volatile. It does offer confirmation, however, that Q3 GDP will come in at 2 percent or maybe a touch higher.

Arguing for a US recession was the very sluggish report on income growth last week. Consumer income was off -.1 percent and spending was up .2 percent. Food and energy accounted for much of the spending increase and they are not very flexible purchases. Savings dipped to 4.5 percent.

One oddity about the savings rate was pointed out by my pal, Rich Farr of Boenning and Scattergood. Rich, ever the sharp eyed analyst, noted that employer paid health care health premiums count as savings. I get why, but they are not savings-savings as we might think of it. So the available cash really isn't there to the extent we might think. Interesting.

The rest of the world was blah, but no more than blah.

China registered 51.2 for manufacturing and a better 53 for services. The US service number comes Wednesday with the over/under at 53. The Euro zone was 48.5, as expected. Germany led the way with 50.3 and Spain lagged everyone at 43.7. I would worry more about a European recession than a US one. Or I guess I would worry first about a Euro set back.

The European Central Bank meets this Thursday and most are expecting an interest rate cut. Headline CPI readings are above target and that might hold up the decision. But I think the market would be disappointed by non-action on rates. Quite a few observers are looking for a 50 basis point cut.

And we get treated to the monthly jobs number this Friday. As always, the ADP survey will premier the official number on Friday. Estimates for both right now are for 75K new jobs. Remember, an initial unemployment reading of around 400K is consistent with job creation of up to 100K.

We'll get back to the Greeks and the Germans and that mess later. It ain't going away!

Vincent Farrell, Jr. is chief investment officer at Ticonderoga Securities and a regular contributor to CNBC.