Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Is The Slowdown In U.S. Manufacturing Stabilizing?

Published 10/23/2019, 07:24 AM
Updated 07/09/2023, 06:31 AM

It’s been obvious for some time that the US manufacturing sector has been stumbling, which has been a factor in the general deceleration in US economic output this year. But October data hints at the possibility that manufacturing’s slide has ended.

Preliminary survey readings from three Federal Reserve banks suggest that manufacturing’s headwinds may be easing. It’s premature to read too much into this data, but suddenly the possibility looks a bit stronger for thinking that this sector’s weakness has run its course. If that turns out to be the case, a key risk factor may be set to fade for the US economy in the months ahead.

It wouldn’t be the first time that a weak manufacturing sector finds its footing and reverses a worrisome decline. Recall that in 2015, this slice of the economy was stumbling and contributing to a general weakness in the broad economic trend. But a revival took root in 2016, providing support for a reacceleration in economic growth generally.

For much of 2019 it’s been obvious that manufacturing has once again found itself on the back foot. But in the wake of October survey data published in recent days it’s reasonable to ask if a repeat performance of the 2016 rebound scenario is in progress.

The source for this tentative optimism: a trio of Federal Reserve banks, including yesterday’s upbeat report from the Richmond Fed, which reports that “Fifth District manufacturing activity strengthened in October.” Growth also prevails in this month’s releases from the New York and Philly counterparts.

Fed Reserve Bank Manufacturing Indexes

One month of survey data is hardly definitive and so it’s far too early to move beyond wary optimism at this point. Nonetheless, the latest numbers look encouraging. In the chart below, the red line reflects the monthly average of three regional Fed bank manufacturing indexes (based on numbers published by the New York Fed, Philadelphia Fed and the Richmond Fed). Recent history implies that the weak run of late is giving way to a degree of stability.

Tomorrow’s survey data from the Kansas City Fed, followed by next Monday’s Dallas Fed release, will provide more insight for the October profile. Meantime, it appears that the year-long slide for manufacturing is easing. Granted, we’ll need several additional months of numbers, in both survey and hard data, to confirm (or reject?) this upbeat narrative. Meantime, let’s recognize that in the current climate a lot can still go wrong. As outlined yesterday, the broad US macro trend continues to show signs of weakening.

Keep in mind that even if manufacturing’s stabilizing that’s no assurance that the broader slowdown in economic activity will follow suit. Manufacturing, after all, is a small part of the US economic activity. But as long as consumer spending holds up and the services sector continues to expand, a manufacturing sector that’s no longer sliding will offer some much-needed support for an aging US economic expansion.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.