Long and Variable Lags Evident in Manufacturing Stress

Source: Economics Group of Wells Fargo Bank, N.A. Summary In the same economy that expanded at a 4.9% annualized rate in the third quarter, the ISM index, a long-trusted indicator of the business cycle, is plumbing some of the lowest levels seen in more than 13 years. Manufacturing is feeling the pinch of higher rates more than the broader economy. It Was the Best of Times, It Was the Worst of Times The age-old barometer for the manufacturing sector says the storm that’s been a long time brewing is now getting worse. Amid a complacency around recession warning alarms, the ISM manufacturing index is flashing red at 46.7 (chart). There have been only five months in the past 13 years when activity has been contracting faster than what is reported in today’s numbers for October. It would be unwise to wave this off as completely strike related. The auto-related slowdown is minimal in our assessment. In fact, the only three industries that saw a rise in new orders (plastics & rubbers, primary metals, transport equipment) are all related to the auto industry where demand is still there, but supply has been tight from the strike (chart). A respondent from the primary metals industry also noted, “Despite the ongoing United Auto Workers (UAW) strike, there’s a firmness and pickup in orders for the rest of the fourth quarter.” It is hard to square such stark warnings about the manufacturing sector less than a week after a GDP print of 4.9% for the third quarter, but this is the reality. Despite broad expansion last quarter, real equipment investment did contract at a 3.8% annualized rate. READ FULL ARTICLE >>