One out of 41 isn’t a bad record, but it’s not what the optimists wanted to hear right now.
After 41 consecutive months of growth, the widely monitored ISM Manufacturing Index showed that the sector contracted in November for the first time since April 2003, the Institute for Supply Management reported this morning. New orders and production both ended growth cycles at 42 months during November, ISM added. “On the positive side, growth in new export orders continued as the weaker dollar continues to fuel that segment,” the accompanying press release advised.
But no matter how much you try to spin the numbers, there’s no getting around the fact that another minor milestone has arrived that suggests the path of least resistance is further economic slowing. Indeed, the index has slipped to 49.5 for the first time in more than three years. Any reading below 50 in the ISM index reflects a contracting manufacturing sector, which is usually accompanied at some point by a weakening economy if not recession.
There was a moment back in early 2005 when the ISM Manufacturing Index looked set to stumble below 50. More than a few analysts warned that an economic slowdown or worse would soon follow. But such forecasts turned out to be premature. Indeed, the danger passed, and the index took flight, as did the economy. But the jump was only temporary, and now it’s completed the below-50 stumble that looked imminent previously. In short, the stimulus of 2004-05 is ancient history now. The question: what, if anything, will give the economy a fresh jolt higher now?
Clearly, no one will be surprised by the news that manufacturing activity’s slowed. A number of other gauges have been telling the same story in recent weeks and months. The ISM index merely offers confirmation of what was already obvious.
The good news is that manufacturing’s fate has long been dethroned as a determining factor in what comes next for the economy overall. Ours is a service economy by far. Alas, that metric has also been showing signs of downward bias recently. But let’s not get ahead of ourselves: the ISM Services Index is still above 50, implying that the economy may remain stronger than the manufacturing sector suggests.
In any case, next Tuesday’s update on the ISM Services Index will reveal if the manufacturing slowdown is spilling over into services. Meantime, the pessimists have another data point to cite.