Economists predicted that American manufacturing would post a small recovery during the month of November for reasons that I would personally call dubious, but they were wrong.
American manufacturing has not recovered at all and has actually fallen further down into a recessionary hole Trump made for them according to the latest reading the purchasing manager's index.
The Institute for Supply Management (ISM) said its index of national factory activity dropped 0.2 point to a reading of 48.1 last month. A reading below 50 indicates contraction in the manufacturing sector, which accounts for 11% of the U.S. economy.
The ISM index needs to break below the 42.9 level to signal a recession in the broader economy. Economists polled by Reuters had forecast the index rising to 49.2 in November from 48.3 in the prior month.
Though the ISM said business sentiment had improved, likely as the United States and China inch towards a partial trade deal, November’s reading marked the fourth straight month that the index remained below the 50 threshold.
This positive sentiment and the corresponding splurge in stocks are the reasons why economists predicted manufacturing would post a small recovery; reasons I find dubious.
The sentiment has been fueled by happy talk from the likes of Trump's top economic adviser Larry Kudlow. It's been fueled by Trump claiming he had secured his "greatest and biggest deal ever." It's been fueled by China claiming they had reached an agreement to roll back tariffs.
In other words, it's been based on a whole lot of nothing. It's now December and there is no deal.
There's just no tangible reason to think manufacturing is going to recover anytime soon especially if factory activity dropped just prior to the holiday shopping season. That suggests that demand has not recovered at a time when demand should be at its peak. Happy talk from the White House may shine dollar signs in the eyes of investors, but it means effectively nothing for average Americans and, evidently, supply chain managers.
Trump could obviously make things much worse if he moves ahead with another round of tariffs on Chinese goods on December 15th.