Economy Trade

Manufacturing Moves Closer to Recession

JM Ashby
Written by JM Ashby

Initial readings of the Purchasing Managers Index (PMI) showed that American manufacturing activity dropped below a level that indicates expansion in August, but now that the full month is behind us and more comprehensive data is available, we know that manufacturing actually contracted by more than expected.

While the new reading is significantly lower than initial estimates indicated (49.1 rather than 49.9) it's also significantly worse than economists expected.

From Reuters:

The Institute for Supply Management (ISM) said its index of national factory activity dropped to a reading of 49.1 last month from 51.2 in July. A reading below 50 indicates contraction in the manufacturing sector, which accounts for about 12% of the U.S. economy. Last month marked the first time since August 2016 that the index broke below the 50 threshold.

August’s reading was also the lowest since January 2016 and was the fifth straight monthly decline in the index. The ISM said there had been “a notable decrease in business confidence,” adding that “trade remains the most significant issue, indicated by the strong contraction in new export orders.

Economists polled by Reuters had forecast the ISM index would slip to 51.0 in August.

If factory activity contracts again during the month of September that would technically indicate a recession and I can't see any good reason to think that won't happen.

Trump just imposed tariffs on $150 billion in Chinese goods and China imposed retaliatory tariffs on $75 billion in American goods. Everything that has precipitated a loss of "business confidence" and reduced exports is getting worse, not better.

With factory activity having already dropped for five consecutive months in a row and with Trump exacerbating what caused it to drop in the first place, why shouldn't we expect to see more of the same?

Trump has already scheduled tariffs on additional $150 billion in Chinese goods for December 15th so there's also no reason to think things will improve between now and the end of the year.

I don't think you have to be an economist to read the writing on the wall.

  • muselet

    On the bright side, a good recession will push yet more wealth upward, so it can trickle down for the rest of us. /s

    Donald Trump will, of course, claim the PMI is fakenews! and declare war on Vanuatu or something equally insane (anything, absolutely anything, to distract from the bad news.

    I do wonder how other Rs will react to this news. After all, it’s difficult to claim the Purchasing Managers Index is a key part of a socialistical cabal plotting to destroy Murca, expecially since they used the PMI to beat Barack Obama over the head because the index wasn’t in the 90s every month of his presidency.

    Hunker down, folks. The coming recession looks to be a doozy.

    –alopecia