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Manufacturing – Some Red Flags

Just a few brief thoughts on this morning’s manufacturing data which continues a streak of weaker than expected data in this space.

Total industry production was very weak at -0.5%.  The manufacturing component registered a -0.4% decline.  Analysts had been expecting a 0.1% rise.  Durable goods were particularly weak at -0.6%.  Total capacity utilization declined to 77.8 versus expectations of 78.3.  In other words, this report was kind of a disaster.

As you can see in figure 1 the economy remains well below its potential.  The current readings are still consistent with many past recessionary environments.  So it’s not surprising that this environment still feels like a recession to many.  That’s because, in relative terms, we’re in the midst of a very meager recovery.

Figure 2 updates the composite real-time PMI index which declined from 2.5 to 1.1 as of this morning’s data.  In addition to the industrial production data the NY Fed reported a weak manufacturing environment with the first negative reading there since January.  The composite index is basically hugging the contraction line so manufacturing is a very weak segment of the economy.

A few key takeaways:

  • This is all consistent with a low inflation environment.  
  • This is all consistent with a muddle through environment.
  • This is not yet a recessionary environment.
  • This is nothing to cheer about.


(Figure 1 – Total Capacity Utilization)


(Figure 2 – Composite Real-Time PMI)

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