U.S. ISM manufacturing survey hits 28-year low

The Institute for Supply Management released its monthly manufacturing survey for the Unite States today. The data show a fall from 36.2 to 32.4 where 50 represents the divide between recession and expansion. The 32.4 figure represented the lowest figure in 28 years, while new orders were at their lowest since 1948, suggesting that future demand for manufactured products will be extremely weak.

The chart below released along with the survey demonstrates that manufacturing weakness in the U.S. extends across all measured dimensions and that the decline is accelerating. This should mean that job losses in the sector will be quite large going forward, especially because new orders are down substantially.

To assess how this downturn compares with previous ones, one should not only look at the absolute numbers but also the speed and magnitude of the change in outlook. First, as to speed, we are seeing the fastest drop-off in manufacturing since at least 1981 as measured by the year change in the index. However, when looking at the magnitude of change we have not reached the levels seen in that recession.

The chart above shows the rolling change in the 12-month average index readings. By averaging out the last twelve months one can get a better read of the duration and depth of change. As you can see, the early 1980s were much worse than what we are seeing today so far. Moreover, manufacturing was a larger percentage of the U.S. economy at that time.

So the overall message is that the manufacturing situation is weak right now. However, as with employment trends, the early 1980s and the 1973-1975 period both were more severe downturns than what we have experienced to date. Nevertheless, we should expect the negative trends to continue into 2009, eventually making this recession deeper than either of those two.

Sources
December 2008 Manufacturing ISM Report On Business® – ISM
Fresh fall in US factory output – BBC News