Despite the sense of inevitable doom from all of the pundits, the June ISM PMI data came in at 51.7 (A reading above 50 indicates that the manufacturing economy is generally expanding.) The June report shows the New Orders unchanged, with Production and Employment growing.
Timothy R. Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee reported that “Comments from the panel reflect continued expanding business strength, but at soft levels; June was the third straight month with slowing PMI® expansion. ” (Link below)
After evaluating all factors, the June ISM PMI report concludes that the Overall Economy is growing, albeit slower, for the 122nd consecutive month.
The Manufacturing Sector was also shown to be growing, also slower, for the 34th consecutive month.
We agree that the pace of growth of manufacturing is slowing.
We also believe that there are other reasons to explain this slowing growth besides an imminent recession:
- Trade uncertainty– Nothing makes trade more volatile than Tariffs Policy being executed via Twitter.
- Trade tensions– Trade with China is a problem much greater than the tariffs issues which we see on the surface. A reset in Global trading order is playing out here, we think.
- Geopolitics– Iran, Russia, Brexit- nervous money remains on the sidelines keeping money tight.
- Speaking of money– The Fed and its future policy regarding accommodation is also on people’s minds.
- Employment– Full employment is typically seen as a positive, but if employers cannot get employees to replace those that they will promote to operate the new equipment, well, it becomes a vicious cycle of a don’t buy the new equipment; b) don’t promote the existing worker; c) don’t hire replacements because we can’t find them. So Full employment actually caps potential for growth.
- Finally, Weather. Can’t have a complete list with out mentioning the weather! Much of manufacturing- especially fabricated metal manufacturing- goes into agricultural equipment. The unseasonable rains this year have certainly had an affect on purchase of Farm equipment. We saw headlines late last month indicating half of Ohio Farmland had yet to be planted.
So “The Beat Goes On.” 34 months of consecutive growth in manufacturing have been logged, 122 months for the overall economy.
We see no imminent triggers for an immediate recession. and as we reported in our latest PMPA Business Trends Report, May 2019 was our fifth highest Monthly Sales Index ever.
We can agree we are at or near a top, but we do not agree that “gloom and doom” are imminent.
June ISM PMI
Farm and Dairy
May PMPA Business Trends
Calculated Risk Blog
Sonny and Cher