The story in the manufacturing sector should sound familiar, as it aligns closely with the broader narrative for the economy in recent months. Like the economy as a whole, the manufacturing sector is still growing, but the pace of growth has ebbed.
The ISM Manufacturing Index declined by 2.4 points last month, dipping to 54.2 while also falling short of expectations for a 55.7 reading. Still, the overall story is one of expansion in a key cyclically-sensitive part of the economy.
The New Orders Index, which comprises 30% of the headline PMI, dipped to 55.5, also declining from 58.2 in the prior month. The new orders component is widely viewed as a strong leading indicator of the manufacturing sector’s health. Although it has moderated, the index remains firmly in expansionary territory and still points to continued growth in demand and activity.
As talks between China and U.S. continue, uncertainty surrounding trade policy remains a cloud over the manufacturing sector. Recently, President Trump extended the deadline for the imposition of additional tariffs on China, citing hopeful signs of progress toward a deal. Whether or not a breakthrough is near remains to be seen, but it seems likely that the Trump Administration is motivated to strike a deal and declare a win. At the same time, a deal would provide some clarity and eliminate a major source of uncertainty for China, where economic growth has been tempered as well.
The overhang from the trade row has been meaningful, but rising interest rates and the broad slowdown in growth have likely had a greater impact on consumer sentiment, which may be showing signs of fading anew after bouncing earlier last month. The University of Michigan’s gauge of the consumer mood slipped in late February. Still, consumers still appear to be sufficiently upbeat to support further growth in spending in the coming months.
Broadly, most of the data tells a consistent story…..growth peaked in mid-2018 and has downshifted in recent months. Still, the economy remains on a solid growth path, and there appears to be little standing in the way of that continuing in the near term.
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