Weakest ISM Number Since 2009
09/07/2012
Factory Sector Slowdown, What About the Rest of the Economy?
Today's report follows back-to-back monthly readings that were in contraction territory for the factory sector. As we have pointed out previously, there have been periods in the past when this measure has fallen into the low 40s without a corresponding slowdown in GDP growth. In other words, contraction in the factory sector has not historically been an indication that the overall economy was necessarily headed for recession.
In that context, recent ISM readings at or slightly below 50 could ordinarily be taken with a grain of salt. Having said that, we find the signals of contraction more worrisome in this cycle because manufacturing has been a growth driver in the current economic cycle. If the contribution to growth from business spending fades, other sectors like consumer spending or government outlays would need to pick up the slack. Yet, consumers have been reticent to spend in recent months and state and local government spending has been negative every quarter for more than two years.
Just Following Orders
Having made our case for keeping a more watchful eye on business spending at this stage of the cycle, one of the key indicators of future spending growth in this report is the new orders component. In last week's Factory Orders report, we learned that non-defense capital goods orders ex-aircraft were off 4.0 percent in July and are now falling at a 10.2 percent 3-month annualized rate. Given that drop in July, today's report on ordering activity in August becomes critically important. New orders came in at 47.1. That is a step deeper into contraction territory from last month and the weakest orders number since 2009. Further discussion on orders and production found in our special "Orders and Production: No Time for Complacency."
This is certainly disappointing, but not a complete surprise given the mixed reports we have seen in some of the regional Federal Reserve purchasing manager surveys. The Richmond Fed Index, the Philadelphia Fed Index and the Empire State Index from the New York Fed all showed a decline in orders for August. On the other side of the coin, orders were in expansion territory in the Chicago PMI, the Dallas Fed Index and the Kansas City Fed Index.
Employment fell to 51.6, and while this is still in expansion territory, it marks the weakest employment reading since 2009 as well. That is not a good signal for Friday's jobs report.
Of the 18 manufacturing industries tracked by ISM, just eight remain in expansion mode, an indication that the weakness is becoming fairly widespread.
Project Announcements
Quantum Fuel Systems Plans Wixom, Michigan, Manufacturing Operations
03/17/2024
The Paslin Company Expands Pontiac-Shelby-Warren, Michigan, Operations
03/17/2024
Schneider Electric Plans-Expands Mt Juliet-Smyrna, Tennessee, Production Operations
03/15/2024
FreezPak Logistics Plans Suffolk, Virginia, Cold Storage Operations
03/15/2024
FrameTec Plans Casa Grande, Arizona, Production Operations
03/15/2024
Ferroglobe Plans Wallace, South Carolina, Production Operations
03/14/2024
Most Read
-
2023's Leading Metro Locations: Hotspots of Economic Growth
Q4 2023
-
2023 Top States for Doing Business Meet the Needs of Site Selectors
Q3 2023
-
The Logistics Analysis That Drives Industrial Site Selection
Q4 2023
-
AI 101 for Site Selection
Q4 2023
-
Technology’s Influence on Workforce Development
Workforce Q4 2023
-
2023 Top States Commentary: Top-Ranked States Have What It Takes to Win Mega Projects
Q3 2023
-
37th Annual Corporate Survey: Economic Pressures Exerting Greatest Effect on Decision-Makers
Q1 2023