The ISM Manufacturing Index will likely be weak again, but it won’t be bad enough to induce an economic recession Nervous Nellies worried about a looming economic recession will likely get another anxiety-inducing data point Tuesday morning. It is worth taking this one with a grain of salt. Economists polled by The Wall Street Journal forecast the February Institute for Supply Management’s national manufacturing index at 48.8. That would be up a bit from a month earlier. But, for a fifth month in a row, it would be below the key 50 mark that separates expanding activity from contracting. Ominously, the last time the ISM index sank below 50 for this long was in 2008 and 2009. No matter how you slice the data, manufacturers are struggling. Global turbulence has hurt demand for manufactured goods and a strong dollar has made it tougher for U.S. factories to compete. Another bellwether, the Chicago Business Barometer, disappointed on Monday and has had several sub-50 readings in recent months. Furthermore, oil’s deep slump has hurt capital-equipment sales. Regional indicators confirm these troubles. The Dallas Federal Reserve’s manufacturing index has contracted for 14 months in a row. Yet other economic indicators of late haven’t deteriorated in line with manufacturing, as was the case in earlier downturns. Job gains have been steady and inflation is moving closer to the Fed’s target. Consumer spending rose in January at the fastest rate in eight months, aided by those same falling energy prices hurting some manufacturers.
Highlighting the benign overall picture, the Citigroup Economic Surprise Index jumped Friday to its highest level in seven weeks. The index, a rolling measure of whether economic data are beating or missing Wall Street expectations, has been improving steadily over the past three weeks. That has coincided with the stock market’s recent move off the year’s lows. The fact that the downturn is manufacturing-specific is important. Manufacturing doesn’t pack as much punch in the U.S. economy as it used to. As of January, the sector accounted for 8.6% of U.S. employment, right around record lows, according to the Labor Department. By comparison, in the 1970s it represented about one-quarter of employees. In the mid-1940s it was nearly 40%. Weak manufacturing activity is a problem. It isn’t so much of one that a recession is assured. Source: The Wall Street Journal
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