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Manufacturers Goods Index Falls Below 50% – Contraction?

The Institute of Supply Management (ISM) Purchasing Manager’s Index is a Leading Indicator for the Manufacturing Industry. It has fallen below 50% for only for the 2nd time since the end of The Great Recession. This indicates the industry is contracting. If you look at the trend line, it clearly illustrates a downward trend.

All of Manufacturing increased only 1.0% led again by Durable Goods, whose growth is clearly slowing. Transportation is leading the way for Durable Goods accounting for 30% of spending. It alone increased 1.3%, while all other categories offset each other with Machinery falling by some 6%. The impact of all other industries is negligible on this indicator.

Non-Durable Goods on the other hand contracted greatly, at 12% overall. Over 50% of  the investment in Non-Durable Goods are the Petroleum and Chemical industries, falling by 11% and 1% respectively. Food Products is the next largest component at around 25%, which was flat for the Quarter. Beverage & Tobacco increased by 6/10 of 1%, but the other categories offset that growth rate to zero.

Let’s take a look at the value of Manufacturing Shipments over the last couple of recessions. What trends can we project from this graph?

Are we expecting another cyclical downturn? If true, it will not be a sudden drop as we experienced during the last recession. The value New Manufacturing Orders may be more meaningful to evaluate current trends. Let’s take a look!

The trend appears to be the same, but if you look closely the downward trend appears more prominent with Orders versus Shipments.

What say you?

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