The ISM Manufacturing index has been below 50 for two straight quarters, signaling a recession.
This has led economists to call doom and gloom on the sector, even citing it as an indicator of a broader recession, as it was for both of the last two.
This noise, says Tim Quinlan and Sarah House at Wells Fargo, is much ado about nothing.
“Despite the litany of negative news for manufacturing, our analysis of the four key variables makes clear that these challenges do not amount to a manufacturing recession,” the economists wrote in a note to clients.
“On that basis the rampant concerns about a manufacturing led recession are overblown, at least at this point, in our view.”
Quinlan and House attributed much of the weakness to 3 commonly cited factors: the stronger dollar, weak foreign demand, and plunging commodity prices.
While the economists noted the headwinds, they took the National Bureau of Economic Research‘s official definition and broke out 4 factors that would signal an industry-wide recession. They found each measure comes just shy of total calamity.
4 simple reasons American manufacturing is not in recession
In addition, said the economists, the idea that a slowdown signals a broader economic recession is overblown.
While it did indicate a recession in 2001 and 2009, it also had a precipitous decline in the mid-1980s and 2003 during the middle of cycles.
The economists said it was analogous to the old quip about an economist that correctly called 5 of the last 3 recessions.
Either way, they concluded, using their adjusted measure, manufacturing hasn’t qualified for recession in its own right.
“Periods of flat manufacturing activity have not always been followed by an industry recession,” they wrote. “As we saw in 1993, 1996, 1998 and 2012-13, growth resumed after pausing mid-cycle.”
So yes, it looks bad. But according to Quinlan and House, it’s not that bad.
Source: Business Insider
Related: U.S. Manufacturing Activity Hits 6-Year Low