Is The Slump In US Manufacturing Easing?

Yesterday’s November survey data from the Philadelphia Fed hints at the possibility that a stronger trend is emerging for the manufacturing sector. The headline number for this regional benchmark posted its first positive reading in three months.

The news follows Monday’s update of the New York Fed’s Empire State Manufacturing Survey, which ticked higher in November, albeit at a still-deeply negative level. The news prompted Paul Ashworth, chief US economist at Capital Economics, to remark that the New York Fed numbers “suggest that the manufacturing sector is deep in recession.”

The question is whether the downturn is ending? It’s too soon to say for sure, but there are some intriguing numbers to consider at the moment. The average of the two Fed indexes currently available for this month implies that manufacturing is headed for better days in the near-term future. The November reading is still preliminary, but based on the figures available to date the average ticked up to a four-month high. The mean remains in negative territory, but at least the trend is still moving in the right direction.


A third update for this month’s regional manufacturing activity arrives later this morning via the Kansas City Fed’s benchmark, which has also been moving closer to a neutral reading lately.

A more reliable measure of the national trend in manufacturing is due on Monday (Nov. 23), when Markit Economics publishes the flash estimate for its purchasing managers’ index (PMI) in November. Previously, this benchmark rebounded to a six-month high in October, suggesting that this corner of the economy is strengthening. But the firmer growth trend in the PMI has yet to find corroboration in the widely followed ISM Manufacturing Index, which ticked lower last month, settling at a virtually flat reading.

Meanwhile, this week’s hard-data update on industrial production for October offered the encouraging sight of stronger manufacturing activity via the Federal Reserve’s estimate. Although headline industrial activity weakened last month, the manufacturing component posted its first monthly increase since July.

Deciding if the upbeat numbers add up to a genuine sign of things to come is still a work in progress and so the isolated hints of progress to date could still turn out to be noise in an otherwise ongoing manufacturing recession. But the case for optimism will certainly strengthen if today’s data from the Kansas City Fed, and Monday’s update from Markit, dispense relatively upbeat news.

Meantime, there’s no shortage of skeptics. “We doubt the October (data) marks the start of a sustainable rebound,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in response to the upbeat Fed data from earlier this week. “But reports of the death of the sector have been exaggerated.”