July 1, 2008

Recession Update (/sarc): Manufacturing Returns to Expansion

Filed under: Economy,MSM Biz/Other Bias,Taxes & Government — Tom @ 10:22 am

Okay, it’s barely there, but I’ll take it:

Economic activity in the manufacturing sector expanded in June following four months of contraction, while the overall economy grew for the 80th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

The reading was 50.2, barely above the 50 needed to indicate expansion. Update: May’s reading was 49.6.

The prediction was for 48.5, and the language used at the link was really off-putting:

As food and energy prices are sucking money therefore all the spending power form the Americans” pockets, there is nothing much left to be spend on manufactured goods, consumer spending has slowed in the recent times, affecting the manufacturing sector badly and therefore affecting the labor market, and here comes the correlation between the ISM reports and the jobs report.

Now what do you clowns have to say?

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Update, 10 p.m.: This paragraph from later in the ISM report is worth puttin’ out there –

A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates the overall economy and the manufacturing sector are growing at this time. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (49.3 percent) corresponds to a 2.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (50.2 percent) is annualized, it corresponds to a 2.9 percent increase in real GDP annually.”

It turns out that the “past relationship” predicted growth rates for May and April were 2.7% and 2.4%, respectively. Blended with June, that would seem to presage a 2nd quarter growth rate of 2.6% – 2.7%.

I think that’s too optimistic. Those correlations clearly haven’t worked in the last two quarters, and as manufacturing’s percentage of GDP continues to decline, I would think that so would the PMI’s GDP predictive ability. But it does make the 1.5%-2.0% predicted GDP growth at this link in the wake of May’s retail sales report look like more than a dart-throw, and makes the media’s recession obsession look that much more ridiculous.

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1 Comment

  1. Growth is growth, slow or not. Personally, I don’t think high energy prices are affecting people as deeply as the media is saying. I don’t know a single person who has not done something because of gas prices.

    Publius

    Comment by Publius — July 1, 2008 @ 11:57 am

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