{"id":1586,"date":"2019-09-03T11:55:27","date_gmt":"2019-09-03T15:55:27","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1586"},"modified":"2019-09-03T11:55:27","modified_gmt":"2019-09-03T15:55:27","slug":"august-manufacturing-activity-and-july-construction","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1586","title":{"rendered":"August Manufacturing Activity and July Construction"},"content":{"rendered":"\n

KEY DATA:<\/strong> ISM (Manufacturing): -2.1\npoints; Orders: -3.6 points; Jobs: -4.3 points\/ Construction: +0.1%; Private:\n-0.1%<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cWith manufacturing now starting to contract,\nit is even more critical that the consumer keeps spending.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  The canary in the mine may be falling off\nits perch.  For the first time since\nAugust 2016, the Institute for Supply Management\u2019s (ISM) manufacturing index\ndropped into negative territory.<\/em><\/strong> \nAnd the details were even more distressing.  Only one of the major sub-indices, supplier\ndeliveries, was positive <\/em><\/strong>and it isn\u2019t even clear that the slowing of\ndeliveries occurred for good reasons. \nOne respondent noted that: \u201cTariffs\ncontinue to be a strain on the supply chain and the economy overall<\/em>.”  That is, it may, at least in part, be getting\nharder to get inputs because of the trade war rather than because of excess\ndemand.  Thus, I am not so sure we should\nput that index into the positive camp. \nOn the other hand, orders were weak as the index went negative\nfor the first time since December 2015. \nExport demand is disappearing.  As\na consequence, production is declining, hiring is faltering and order books are\nthinning.  In other words, this was an\nugly report.<\/em><\/strong><\/p>\n\n\n\n

The construction sector is not doing much better\nthan manufacturing.  While building\nactivity was up a touch in July, it was the government that was leading the\nway.<\/em><\/strong>  In the private sector, a pick up in\nresidential building was more than offset by weakness in nonresidential\nconstruction.  Eight of the eleven\ncomponents were down, including that the weakness is broad based.  MARKETS AND FED POLICY IMPLICATIONS:<\/strong>  Not\nsurprisingly, the markets didn\u2019t react too well to the manufacturing\ncontraction number.  It has been quite clear that the\nmanufacturing sector globally has been hurt badly by the trade war.  J.P. Morgan\u2019s Global Manufacturing Index was\nnegative for the fourth consecutive month. \n<\/em><\/strong>The U.S. decline joins drops in the Eurozone and Japan.  However, all these negative numbers don\u2019t\nindicate the U.S. or the world is now in a recession.  Indeed, the ISM index has to fall another six\npoints before it indicates the U.S. economy could be shrinking.<\/em><\/strong>  It does show that that third quarter growth\nis likely to be in the 2%, which is pretty much the consensus forecast.  Since that is roughly trend growth, I am not\nready to say a recession is baked in the cake. \nManufacturing can decline for a while without the economy flat lining.  But that means the consumer has to pick up\nthe pace, as businesses are not going to invest facing the uncertainties\ncreated by the trade war.<\/em><\/strong>  And\nthat make the labor market data even more important. Given the weak ISM employment\nindex, it will be interesting to see what the manufacturing number is in\nFriday\u2019s August jobs report.  I would not\nbe surprised if the sector shed workers and that could help make the report a\npretty mediocre one.  The\nstrong labor market has been the chief reason consumer confidence and spending\nhas been solid.<\/em><\/strong>Take\nthat away and then I start worrying about a recession.<\/em><\/strong>  A disappointing payroll gain could put even\nmore pressure on the Fed to cut rates again soon.  Unfortunately for the Fed, lower rates are\nlikely to do little since they are falling because of recession worries.  Businesses are not likely to invest heavily\nif they don\u2019t think the economy will hold up. \nAnd if households start fearing a recession, will they actually start\ntaking on more debt?  To those who say\nthe Fed can save us, I need only remind them that the context within which the\nFed reduces rates matters, not just the level – and the context is not\npositive.  <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA: ISM (Manufacturing): -2.1 points; Orders: -3.6 points; Jobs: -4.3 points\/ Construction: +0.1%; Private: -0.1% IN A NUTSHELL:  \u201cWith manufacturing now starting to contract, it is even more critical that the consumer keeps spending.\u201d WHAT IT MEANS:  The canary in the mine may be falling off its perch.  For the first time since August … Continue reading August Manufacturing Activity and July Construction<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1586","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1586","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1586"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1586\/revisions"}],"predecessor-version":[{"id":1587,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1586\/revisions\/1587"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}