A few days ago, the Institute of Supply Management released its closely watched report on manufacturing. It offered little new on the state of the economy. Media outlets noted that in November the index fell slightly from October levels and fell short of consensus expectations, which, as is usually the case, centered on the previous month’s release. That interpretation fostered some concern that the economy is softening further and inspired some to call for a near-term recession.
Statisticians at the ISM put the November index for manufacturing overall at 48.1%, down 0.2 percentage points from the 48.3% level averaged in October but up 0.3 percentage points from the September low of 47.8%. The ISM algorithm suggests that this level is consistent with annual real GDP growth of 1.5%. Combined with a non-manufacturing index pointing to real annual GDP growth of 2.0-2.5%, the picture painted by the ISM measures suggests a consolidated real GDP of around 2.
This picture fits well with the by-now familiar story on the economy. Real growth came roaring into 2019. The ISM manufacturing index for the first three months of the year averaged 55.2%, well above recent figures and consistent with annual real GDP growth of better than 3%. As winter turned to spring, the ISM figures began to weaken, falling to 51.2% by June. They declined another 3.4 percentage points to the September low.
The detail of the ISM report does more to confirm this less exciting but also less frightening prospect. The new orders figures, which had declined from earlier this year, came in for November about even with the September lows. This is a critical component of the overall index. It would be the first to signal either a rebound or troublesome further weakness. It clearly showed neither. Export orders, however, did offer a degree of encouragement.
If the picture painted by the competent and efficient people at the Institute of Supply Management confirms a less robust, slower-growing economy than prevailed in 2018 and earlier this year, it also certainly confirms the picture painted by other available indicators, many of which I have reviewed in this column, that warn against an easy extrapolation of the slowdown into a near-turn recession.
We all know hundreds of thousands jobs are usually added prior to Thanksgiving / Christmas. The true picture will emerge in January.
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