Manufacturing Growth Is Officially Slowing

Manufacturing Growth – I have been looking for weak economic data points for a few months because the ECRI index has been shooting off warning signs. It was the only metric I saw which was starkly negative in Q2 which means it was tough to follow it.

However, now we have evidence to support its prediction as growth is slowing. The housing market is showing signs of weakness and the buying conditions for autos are also weak.

Two of the three regional Fed manufacturing reports have shown weakness. These are leading indicators for the August ISM PMI. I expect the hard data will follow suite in the next few weeks when it is released.

As you can see from the chart below, the regional Fed reports now expect an ISM PMI of about 55. To be clear, that’s a good reading. The economy has gone from great to good in August.

Manufacturing Growth – Weak Kansas City Fed

The fear is if the rate of change keeps falling, the economy will be at trend growth by the end of the year. GDP growth could be below 2% in Q4. I’m hanging my hat on weakness in sentiment readings which have been stronger than the hard data this year up until August.

The most recent weak soft data report is the August Kansas City Fed report as it had a 14 reading which was way below the lowest estimate of 22. The consensus and the July readings were both 23.

This reading is the weakest once since December which was 13. From April to July, manufacturing in the Kansas City District was really strong.

August production was up from 12 to 18, but it’s still down huge from the peak of 42 in May. Volume of new orders was only 8 which was down from 9 in July and down from 29 in April.

The good news is inflation fell as the prices paid for raw materials fell from 52 to 44 and the prices for finished goods index was flat at 27.

Those stats were all on a month over month basis. On a year over year basis, they look better because August last year was much weaker than July of this year.