The manufacturing slowdown

“Our forecast that the U.S. will grow by around 2 percent this year is now looking a bit optimistic,” economist Paul Dales of Capital Economics conceded to the Associated Press on Monday.  2 percent would have been weak, but now it appears 1.4 or 1.5 percent is more likely.

This is because the manufacturing sector just contracted, for the first time in almost three years.  The AP quotes another economist, Dan Greenhaus of brokerage BTIG, rendering an understated but gloomy verdict: “This is not good.”  He went on to offer a faint glimmer of hope, saying the new manufacturing report from the Institute for Supply Management “does not mean recession for the broader economy,” although “it is still a terribly weak number.”

Highlighting the perpetual “surprise” of analysts throughout the Obama years, as each new “unexpected” chunk of grim news drops on the American economy, has become an engaging hobby.  Sometimes this is due to ideological bias, or a reluctance to offer the media grim pronouncements on Obamanomics that they will not be eager to report.

(By contrast, the easiest way for an analyst to gain swift, widespread media coverage under the Bush Administration was to spot even the most unlikely dark clouds amid economic silver linings.  My favorite example was a long-ago newspaper article bemoaning the tough times faced by employment services, back when unemployment was only four percent.  And of course, who can forget the media’s obsessive focus on “burger-flipper jobs” in the mid-2000s – now wholly and completely forgotten, when Obama’s economy really is cranking out part-time and temporary jobs?)

But part of the reason economists like to season this grim forecasts with a bit of hopeful, perhaps even wishful, anticipation is their understanding that attitudes shape the economy.  There is some real value in trying to keep a sputtering flame of optimism alive.  When that flame goes out, scary things happen in the darkness.

The manufacturing slowdown is worrisome because it’s driven by both weak business demand, due to nervousness about making big investments, and weak consumer demand.  Some of that demand weakness is coming from overseas.  Nobody thinks anybody else wants anything.  It takes time to ramp up manufacturing output, so the situation will not be corrected swiftly.

One genuinely good bit of news is that manufacturing job growth is still doing better than our general level of double-digit malaise, which suggests the managers of those assembly lines are still holding their breath and waiting for fresh orders.  Consumer confidence is down, in part because of anxiety about grinding unemployment.  Reduced demand has brought down gas prices, but there is not yet much evidence of these lower fuel costs leading to increased consumer spending – perhaps due to unemployment anxiety, or nagging fears that gas prices will rise again.  What a train wreck of an economy.