Global| Sep 03 2019US Purchasing Managers "Recession" Warning---- Few Firms Report Gains in Orders and Production
|in:Viewpoints
Summary
The August report from the Institute of Supply Management on the manufacturing sector showed a sharp drop in overall activity, with very few firms reporting gains in new orders and production. The manufacturer's purchasing managers' [...]
The August report from the Institute of Supply Management on the manufacturing sector showed a sharp drop in overall activity, with very few firms reporting gains in new orders and production. The manufacturer's purchasing managers' index has one of the best records of foreshadowing recession so the drop in the composite index in August, although its only for a single month, highlights how vulnerable the overall economy is at the present time.
In August, the composite index dropped 2.1 percentage points to 49.1, falling below the all-important threshold of 50 (the so-called dividing line between growth and contraction) for the first time since 2016.
Four of the five components that comprise the overall index dropped in August, led by declines in employment, production and new orders. The only component that rose in the month was inventories. That's a bad mix, as it signals more weakness in manufacturing in coming months.
The new orders index at 47.2, dropping below 50 and also below the composite index of 49.1 is a troubling development as the orders index usually offers insight in the future direction of the overall index.
In August, only three industries out of 18 manufacturing industries reported gains in new orders, and only 4 out of 18 reported gains in production. Combined, these numbers on firms reporting gains in orders and production match the lowest of the current cycle and also are marginally below the levels that were in place in the fall of 2009.
To be fair, the signal from the purchasing managers survey has to be sustained over a span of several months for it to confirm a sharp slowdown or an outright decline in economic activity. Yet, the clock is ticking and the outcome of the US/China trade talks could easily tip scale one way or the other, but in the meantime the key takeaway from the August purchasing managers survey is that a number of companies earnings report will be weaker than expected for Q3.
Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
Joseph G. Carson
AuthorMore in Author Profile »Joseph G. Carson, Former Director of Global Economic Research, Alliance Bernstein. Joseph G. Carson joined Alliance Bernstein in 2001. He oversaw the Economic Analysis team for Alliance Bernstein Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor All-Star Team for Fixed Income and ranked as one of Best Analysts and Economists by The Global Investor Fixed Income Survey. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Honorary Doctorate Degree, Business Administration Youngstown State University 2016. Location: New York.