WE never crane our necks to see the wreckage. So why should rubbernecking be the bane of our collective existence? What if “nothing to see here” screens were instead employed to lead fewer drivers to slow down? A 2013 study conducted by the University of Central Florida put the idea to the test. A group of 54 college students was recruited to drive through a series of traffic scenarios in a driving simulator while wearing eye-tracking goggles. Participants were randomly assigned to one of three scenarios: a full barrier completely blocking the accident’s view, a partial barrier obscuring most of the scene, and no barrier at all. When the view of the accident was fully blocked by a barrier, drivers only spent an average of about 4 seconds eyeing the side of the road. In contrast, they spent an average of around 12 seconds “rubbernecking” in the no-barrier and partial-barrier conditions, according to the Association for Psychological Science.
Rubbernecking has us pondering bottlenecks, which are best observed via delivery times in the dismal science. The longer it takes to ship things, the bigger the bottleneck. But when things speed up, there’s less throughput moving across the supply chain. The latter became clear in the Institute for Supply Management’s (ISM) November manufacturing report.
Before delving into the details, ISM was fundamentally risk off, not that the U.S. Treasury market was having any of that in Monday’s session. In don’t-fight-the-tape fashion, the combination of BoJ tightening talk and increased corporate bond issuance lifted the entire yield curve between seven and eight basis points. The headline ISM index (48.2 November from 48.7 October) disappointed all but two of the 48 economists in the Bloomberg survey. Forward-looking gauges New Orders (47.4), New Export Orders (46.2), and Backlogs (44.0) all contracted, suggesting the “good news” from the Production index (51.4) will peter out. At -1.5, the New Orders-Inventories spread flipping back into the negative depletes traction further.
One standout from ISM’s underbelly was fading bottlenecks and waning capacity pressures. Supplier Deliveries index fell under the breakeven line to 49.3 from 54.2 for the first time in four months (yellow line). The parallel S&P Global manufacturing survey helps frame quicker shipping times. The Quantity of Purchases figure, unique to the S&P report which measures procurement activity, stayed close to a neutral reading, at 50.2 in November from October’s 50.1 (red line). More importantly, it’s hovered below its long-run trend level of 51.5 for five straight months. The pause in cooling in the Prices Paid index (58.5 versus 58.0) might not last.
It being the first week of December, we’re conditioned to probe all things labor. Without another ‘Employment Friday,’ we must rely on the ADP monthly private payroll tally. ISM points to ongoing compression — just 2 of 18 registered reported Employment grew for the month. Per the survey: “For every comment on hiring, there were 3.4 on reducing head counts, equaling the ratio in October. Companies continued to focus on accelerating staff reductions due to uncertain near- to mid-term demand. The main headcount management strategies remain layoffs and not filling open positions.”
Nowhere was this more obvious than in “strong contractions” in both (leading) Backlogs and (coincident) Employment. Each measure rang in at 44.0 in November, a material development: dual sub-45 readings landed as a 10th percentile event. In overlapping years since 1993, periods of extended strong contraction are rare. In 2024 and 2025, it happened seven times, echoing only the 2001 and 2007-09 recessions. To be sure, ADP’s manufacturing payrolls reached an interim high in July only to fall in August (-18,000) and October (-3,000), interrupted by a meager pause in September (2,000).
Besides being a short-run guide for output trends, the ISM New Orders-Inventories spread also guides risk appetite. November’s reported inversion may have coincided with an uptick in the VIX index to 17.24 at the start of December (inverted purple line). But even at the -1.5 level (lilac line), equity volatility is disconnected from ISM fundamentals. Granted, the spread has been volatile this year, swinging from January’s 9.2 high to March’s -8.2 low. Still, its attempts at escape velocity since summer have flopped.
The bankruptcy cycle concurs. As of November 28th, Bloomberg’s daily tracking at BCY <GO> has ever so quietly hit a total of 23 large filings for companies with $50 million-plus in liabilities. The significance of ‘23’ is that it matches August 2023’s cycle high, a recessionary level validated by the steepening yield curve (dashed teal line). To that end, the 5-year/30-year yield spread has crept up to the 100-basis point mark recently. Irrespective of who is the next Chair of the Federal Reserve, a quickening in the bankruptcy cycle ups the ante for near-term rate cuts after the December meeting.
Bottlenecks have eased in the industrial supply chain, flagging upstream disinflationary risks that could bleed into the distribution chain. QI’s own version of rubbernecking the bankruptcy cycle adds to the disinflationary theme given BCY has turned decidedly cyclical in November. In the last month, 45% of large bankruptcies came via the consumer discretionary sector, nearly double their 25% share thus far this year. Ergo, hyperbolic conflations of price increases obfuscating paltry unit sales gains aside, we’ll let the jury deliberate as to the veracity of the “explosion” in Black Friday sales.