The U.S. manufacturing sector shrank in December, according to the nation's supply executives in the Manufacturing ISM Report On Business.
"The December PMI® registered 47.2 percent, a decrease of 0.9 percentage point from the November reading of 48.1 percent,” said Timothy R. Fiore, CPSM, C.P.M., and chair of the Institute for Supply Management’s (ISM) Manufacturing Business Survey Committee. “This is the PMI®'s lowest reading since June 2009, when it registered 46.3 percent.”
Since the Great Recession ended in June 2009, the economy has been expanding. Meanwhile, December was the fifth straight month of PMI contraction.
The ISM report showed that the New Orders Index dropped to 46.8% in December versus November’s 47.2 percent. In addition, the Production Index registered 43.2%, a drop of 5.9 percentage points versus November’s 49.1 percent. The New Export Orders Index shrunk in December as it did in November.
“This is consistent with a lot of other data we have been seeing through the second half of 2019,” Dean Baker, a senior economist at the Center for Economic and Policy Research, told MultiBriefs in an email. “The manufacturing sector is weak and looks to be getting weaker. This seems to be largely a story of Trump's trade war.”
The president implemented that policy in March 2018.
There was a ray of sunshine elsewhere in the ISM report. “Inputs — expressed as supplier deliveries, inventories and imports — improved in December, due primarily to slowing contraction in inventories and supplier deliveries remaining in expansion territory,” according to Fiore. “Prices increased for the first time since May 2019, a positive for 2020.”
“No one knows what our future trading situation will look like with China, or for that matter the EU or even Canada,” according to Baker, “but more importantly, this is leading to enormous uncertainty.”
A lack of certainty about trade policy can affect capital investment. “Many companies are putting off investment until they have a clearer sense of what the future looks like,” according to Baker. “It is a predictable result of an unpredictable trade policy.”
The American Enterprise Institute declined a request for comment.
Robert Scott is a senior economist with the Economic Policy Institute in Washington, D.C. “The ISM report is a reflection of the slowdown in both the domestic and foreign economies,” he told MultiBriefs in an email. “As the report indicates, GDP growth has slowed to a rate in the range of 1.3%. Manufacturing output and employment are contracting.”
The Federal Reserve Bank of New York has forecast 1.2% growth for 2019’s fourth quarter and 2020’s first quarter.
Like Baker of the CEPR, Scott takes a dim view of the president’s fondness for imposing tariffs on trading partners such as China.
“This report is a reflection of the failure of the Trump administration trade and economic policies,” said Scott. “Despite all of Trump’s tariffs and trade actions, the trade deficit (gap between exports and imports) increased 25% in the first two years of the Trump administration (2016 to 2018).”
Investment is a vital component of growth.
“Total investment has actually fallen in the GDP accounts in the past two quarters,” Scott told MultiBriefs. “Manufacturers are not investing because the economy is not growing, and there is insufficient demand for domestic manufactured products. Not a pretty picture. The stage is set for the coming Trump recession.”
Recessions follow expansions. Now add the 2020 presidential elections.
Fiore takes a glass half-full approach to future trade prospects. "Global trade remains the most significant cross-industry issue,” according to him, “but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the U.S. and China.”
Meanwhile, relations between Iran and the U.S. are a potential flashpoint, economically speaking. Rising hostilities between the two nations could have far-reaching impacts. One is a spike in oil prices.
