More signs that the economy is slowing came from housing data, but also from the all-important Institute of Supply Management surveys. While these surveys still show a growing economy, it is clear that the pace of growth is ebbing. We're not in danger of a recession...yet, that is...we’re just in for some slower growth, in the order of +2% to 2.5% real GDP growth for the fourth quarter. The third quarter should be in the +2.5% to 3% range.

Of concern in the ISM manufacturing report was the employment component turning negative. This is not in and of itself an issue, because manufacturing employment has not been strong for quite a while—decades, in fact, as new technologies have created significant gains in productivity among durable goods manufacturers. The ISM non-manufacturing report still showed employment growth but that is slowing. Remember, one of the reasons why employment has been so good in the non-manufacturing sector has been very strong residential housing construction. That sector is cooling, thanks to the continuing Fed rate increases.

Another reason the ISM employment data are slowing is that it is getting harder to find workers. With unemployment at 4.6%, wage pressures are starting to build. There's nothing wrong with workers getting paid more, but the Fed is worried that this is a sign of inflation brewing. As long as productivity is growing faster than wages, those wages are paid for; when wages grow and productivity does not, that is a serious problem. As long as GDP is growing faster than productivity, it is a sign that employment will be growing. With the economy slowing, it is likely that the employment data will stop improving and head back toward 5% (which is still quite good) sometime in the next year.