US Manufacturing Sinks Deeper into Mire, Sep. 2009 evoked

Markit and ISM add to the gloom.

The decline of US manufacturing in the cacophony of regional and national indices, which started in mid-2014, is a sight to behold. Today we got two national indices for April. Both added more gloom to the scenario.

Of the national manufacturing indices, Markit’s PMI, which is based on surveys of purchasing managers, had been the more positive one – if that’s the right word. But it too has steadily been losing ground since mid-2014, when it hovered around 57 (above 50 = expansion).

In April, the index dropped to 50.8, from 51.5 in March on a seasonally adjusted basis, which as the report put it, “signaled the slowest improvement in overall business conditions” since September 2009.

Output volumes compared to March were “close to stagnation,” with the “weakest rise” since October 2009. But at an annual rate, output actually fell 3% — so an actual decline in output:

Anecdotal evidence suggested that subdued client demand, uncertainty about the economic outlook, and lower energy sector capital spending had all acted as a drag on manufacturing production in April.

Reduced demand for exports hit new orders. The backlog of work declined for the third month in a row as weak new orders couldn’t keep up.  And “the latest fall in unfinished business was the sharpest since September 2009.”

As manufacturers are trying to tackle their bloated inventories — after a nationwide buildup to crisis levels — destocking “is very much in evidence as companies often reported weaker than expected demand.” Stocks of purchases fell for the fifth month in a row. Post-production inventories also dropped.

And inflation is working itself back into manufacturing. These “renewed input cost pressures” were triggered by higher raw material costs. Yet manufacturers lamented that they have not been able to pass on the rising costs to their customers. Instead, “factory gate charges decreased further, reflecting squeezed pricing power….”

The report summarized it this way:

The April PMI data suggest there’s no end in sight to the current downturn in manufacturing activity. The survey indicates that factory output is dropping at an annualized rate of approximately 3%, and factory headcounts are being culled at a rate of around 10,000 per month.

Rather than reviving after a disappointingly weak first quarter, the data flow therefore appears to be worsening in the second quarter, raising question marks over whether GDP growth will improve on the near-stalling seen in the first three months of the year.”

So this has been the more positive of the two PMI reports until recently. The Institute for Supply Management’s PMI already took the trip into contraction mode.

After registering above 53 in mid-2015, and around 58 during the glory days in mid-2014, the index zigzagged lower. It entered contraction last October, hit a low of 48 in December, and stayed in contraction for five months, until March when it suddenly surged 2.3 points to 51.8. The US manufacturing recession was declared over.

But now it has dropped again, this time to 50.8, just a hair away from falling into contraction once again. New orders dropped 2.5 points to 55.8; order backlog dropped to 50.5; production dropped 1.1 points to 54.2. And destocking has kicked in. The Inventories Index dropped 1.5 points to 45.5. Raw materials inventories contracted for the 10th month in a row, and at a faster pace than in March.

While the Employment index rose to 49.2, it still indicated that employers were shedding jobs.

And the index for input prices soared 7.5 points to 59.0, based on an increase in raw materials prices, confirming other indications about rising inflation pressures deep in the bowels of the economy.

By now, after decades of offshoring, manufacturing employment is down to only 9% of the US workforce and accounts for only 12% of the US economy, which is largely driven by consumer spending and services. But manufacturing jobs are well-paid, and the sector feeds secondary sectors. So weakness in manufacturing spreads gradually through the rest of the economy. When manufacturing sinks into this sort of quagmire, it becomes, as the Dallas Fed had put it, a “prelude to recession.”

On paper, slow economic growth might look OK-ish, but in the US, where there’s significant population growth, it’s toxic. That’s why the numbers are hushed up. Read…  Why this Economy Feels Even Lousier than the Lousy GDP Print

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  18 comments for “US Manufacturing Sinks Deeper into Mire, Sep. 2009 evoked

  1. d'Cynic says:

    I am waiting for the banks to pay me to take out a mortgage. My plan is to take out a million dollar mortgage which around here pays for a trailer, and quit my job. Then I can live off the bank. Why worry, the end is nigh. /s

    • walter map says:

      “I am waiting for the banks to pay me to take out a mortgage.”

      I’m waiting for the banks to pay me to take out a mortgage to buy out some third-world dictatorship. Some place where the weather is nice and the locals are easy-going, which leaves out all the former confederate states.

    • walter map says:

      “My plan is to take out a million dollar mortgage”

      Make it billions. You want to be TBTF.

      • NotSoSure says:

        Exactly, if you owe a million, the bank owns you, but if you owe billions, you own the bank!!!

        I still think though at the end of the day, it’s still worth it to put the money in the bank because negative rate will eventually lead to deflation and as long as the rate of deflation is going faster than the negative rate, then you are still ahead.

        And speaking of which, the economy is doing so great, the stock market keeps rising.

      • d'Cynic says:

        Actually, I want to build some equity from the proceed that the bank pays me, then sell up, and buy some island in a sunny place. All the way praising the holy dynasty of Greenspan-Bernanke-Yellen, and their court jesters. Life is stranger than fiction in the new normal. /s

  2. walter map says:

    I still think it’s a bad idea to tax workers so the government can pay corporations to ship their jobs overseas to slave-wage dictatorships, but I’m not getting paid off to shut up about it.

    • Thomas Malthus says:

      They have no choice

      Debt: The Key Factor Connecting Energy and the Economy

      • ANON says:

        “Money is really a portable promise for a share of the future output of the economy.”

        Took Gail quite a shocking amount of time and blogposts to figure that one out. :)
        Well, at least the old lady can still think outside the box. Money is a token for promises, correct.

    • Chicken says:

      Quite right, this policy leads to a shrinking tax base tempting more of the same by increasing minimum wage to kick that can another few feet.

      Wonder how those Treasury receipts are looking these days?

    • chris hauser says:

      spot on, at least in spirit.

      on the other hand, there are other actors in a competitive world.

      once upon a time, transfer hijinks were frowned on, now they seem the norm. as an individual, i can’t sell off my brain, nerve, knowledge, experience and know-how to the caymans, or can i?


  3. OutLookingIn says:

    “Sinks Deeper Into Mire”

    marsh, bog, swampy ground
    slimy soil of some depth or deep mud

    The only creatures who live and thrive there, call Wall Street of Washington DC home! Its fundamental. Looking at ALL the economic fundamentals and then connecting the dots, paints a grim picture.
    This is just one more fundamental.
    Meanwhile we wait for Friday’s non-farm payrolls report for April and consumer credit. Lets see how much data massaging the powers that should not be do to paint a rosier picture.

    • chris hauser says:

      i call washington dc home, and this place is not reality.

      on the other hand, y’all keep sending your representatives here. it’s not like we’re lying in wait.

  4. Lee says:

    “So weakness in manufacturing spreads gradually through the rest of the economy”

    As you said, this is a service economy. But what I really think you meant to say was that this is a CIVIL SERVICE economy. And it’s not just Washington DC. In most states the civil servants are all six figure salaries with twenty year retirements.

    In my community librarians make 80K to manage virtually nothing. 30 Yr old cops make 130K!!! BASE! Everyone is on the take form high taxes and all the biggest homes in town are owned by the civil service elite (who make sure their relatives are hired into the fold.) But taxes keept going up to pay these 9-5 ers.

    I’ve read that as much as 20% of all the jobs in some states are govt related. You don’t need a properly functioning economy to keep these people employed, all you need is a fresh round of Asian money.

    How can you have an economy based on a largely non-productive asset?? Manufacturing is nothing compared to the civil service economy!!

    • walter map says:

      “In most states the civil servants are all six figure salaries with twenty year retirements.”

      It figures. We’ve heard you can’t live at all in NYC for less than half a million. Why, Frisco city employees typically live in shacks and dormitories.

      The median is actually low 50s, excluding benefits, if you credit the statistics and aren’t motivated to disparage them. And thanks to the machinations of corporatists, any worker’s pension becomes less of a problem year by year, having been largely replaced by 401ks so they can serve Wall St.

    • night-train says:

      Lee: Your views are no doubt heart-felt, but are completely off base. The great majority of government workers earn well below 6 figures, including benefits. In fact, most professional positions (those requiring specialized degrees) pay less, often far less, than their private sector counterparts. And the number of those positions available are quite a few less than prior to 2008. In the states with which I am familiar, many positions have been eliminated through attrition, which means those left behind have greater workloads with no increase in pay.

      My wife retired with 30 years in state government. Without my income, she could not have afforded retirement when she chose to. And the funny thing is, despite the widespread disdain for government workers, merchants and service providers accept her money just like money from people with “real” jobs.

      • chris hauser says:

        my observation is that half the government workers fully earn their pay, which is just the same as the private sector.

        whether it’s line or management, same thing.

  5. Julian the Apostate says:

    As someone who currently calls Iowa home, re the mire comments: never wrestle a pig in the mud. You get filthy, and the pig enjoys it!

    • night-train says:

      Julian: That’s good advice for all of us. Hope you didn’t come by it the hard way. :)

Comments are closed.