The ISM’s survey of national factory activity slipped in August. The report stated that manufacturing in the U.S. fell by the sharpest rate since 2009, a chilling year to bring to mind. The Reuters' headline stated that this was the third straight month of manufacturing decline in the U.S.
First, let me state that I am a fan of the ISM and of the Purchasing Managers Index. It is a useful leading indicator when taken in aggregate. The August result of 49.6 does not signal a recession, only a slowing in the rate of recovery.
More important is the reality that manufacturing in the US has not declined for three months in a row. The Total Manufacturing Production Index, published by the Federal Reserve Board, moved higher at a steeper-than-average pace in both June and July. The August figure is not available yet. The difference between these facts and the headlines is that the Fed deals with actual results while the ISM is based on a survey. Surveys are often useful, but in this case, it seems to be misrepresenting reality.
The U.S. manufacturing sector through July has risen 20.3% off the June 2009 low. That makes this rising trend steeper than both the 1991-2000 and the 2001-2007 events (at 15.2% and 9.6%, respectively). Internal trend characteristics and external leading indicators portend more rise in the manufacturing sector. Don’t let the headlines scare you into a recession.
