Skip to Content
While the manufacturing sector recently slipped into contractionary territory, it isn’t the first time it’s occurred in this expansion.

9-19 Manufacturing Main

Manufacturing has a long-standing status as a barometer for the health of the economy. In August, the ISM Manufacturing Index slipped into contractionary territory, which is a reading below 50. Since a downturn in manufacturing activity often precedes a slowdown in the broad economy, any indication of contraction merits attention. However, the recent dip may not last — it’s not even the first occurrence in the current expansion.

Over the past decade, there have been two periods where the index has similarly fallen below 50: in 2012 and 2015, then rebounded. In both instances, the service sector held up well and the manufacturing slowdown proved to be brief. While manufacturing is still important, the transition to a service-based economy in recent decades has diminished its impact on the business cycle in the United States. Today, the ISM Services Index remains in expansionary territory, suggesting solid growth therein. The wild card for manufacturing is the ongoing trade rift with China. Progress in negotiations would lift a huge cloud that hangs over the sector; further deterioration would conversely exacerbate conditions.

Overall, the slowdown in manufacturing is just one piece of the mosaic. While it presents a risk to the economic outlook, there are other areas of the economy that could help to offset this near-term headwind (as discussed in our accompanying commentary).

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.