US manufacturing suffers a steep decline

The ISM Manufacturing survey, a widely-followed gauge of manufacturing activity in the United States, plunged in September from a near-recession reading of 49.9 in August to the deep recessionary level of 43.5. This shockingly steep fall is yet another sign that the U.S. is in recession.

Last Thursday a foreshadowing of the ISM survey came in the form of the durable goods report. At the time, I said:

Economists had expected the durable goods report for August 2008 to be weak, but the report showing durable goods orders down 4.5% was much weaker than expected.

While I do believe that the United States is in recession and the durable goods report is considered a key indicator of future manufacturing activity, I do not put that much weight in one report. The durable goods report is notoriously volatile from month to month and we can expect major revisions going forward.

Nevertheless, we should be cognizant that most of the economic data being released for the third quarter points to a very weak economic environment.

Unfortunately, the ISM report only confirms the steep downward path that the U.S. economy has taken in the last few months. Retail Sales, Personal Income, Employment and Production, the four gauges of recession used by the NBER (National Bureau of Economic Research), are all pointing to recession.

However, most worrying in the ISM data are that the data points pointing to future industrial production, New Orders and Backlog of Orders, are down the most. This suggests that manufacturing activity will absolutely collapse and many layoffs in the manufacturing sector should be expected.

Unfortunately, this report has almost zero positive about it. It is truly awful. Let’s hope this is a one-month aberration because, if it is not, the U.S. economy is in deep trouble.

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September 2008 Manufacturing ISM Report On Business – ISM

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