The Dow Jones Industrial Average fell 300 points as of 10:10 am Thursday after the Institute for Supply Management reported the second-lowest reading for the US services sector since the Great Recession. The market reduced its loss to 100 points by 10:30 am.

Earlier this week, ISM reported a plunge in its manufacturing index to the lowest level since 2009. With manufacturing in recession and services barely growing, the US economy is tipping towards recession. The US stock market has now lost almost 5% of its value during the past week.

This isn’t looking like “the greatest economy that we’ve had in our history, the best,” as President Donald Trump has characterized it. Yesterday I asked whether Trump could step back from the trade war with China in time to avoid a recession. After this morning’s data, the answer evidently is, “Perhaps not.”

Capital investment and manufacturing both shrank during the second half but consumer spending kept the economy growing at a 2% annual rate during the third quarter. With employment barely growing according to the ISM survey, consumers are likely to save rather than spend. As many economists have observed, consumer survey data shows far less optimism about the future than about present conditions, a warning sign of consumer caution. 

In a separate report, the Census Bureau reported a decline in new orders for nondefense capital goods. Year-on-year, capital goods orders are down about 2%.

The United States is running a trillion-dollar budget deficit and an expansionary monetary policy. The combination of fiscal and monetary stimulus has supported growth in consumer spending. It also has buoyed stock prices, as large US companies borrow at low rates and pass the proceeds on to their shareholders in the form of equity buybacks and dividends. This is a fragile state of affairs. Trump’s economic advisers should have explained to him that the economy has been on a sugar high and might be subject to a sharp letdown.

Consumer survey data, for example the widely-followed University of Michigan Survey, indicate uncertainty among consumers. If hiring in the services sector slows sharply in line with the ISM report, consumers will retrench and US economic growth will slow to a halt.