In August, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — declined nine points to −10 from July’s reading of −1. Among the index’s components, shipments lost sixteen points to −17, and new orders dropped six points to finish at −11, while the jobs index inched down three points to 1.
Other indicators also suggested additional softening. The index for capacity utilization declined eight points to −14 and the backlogs of orders fell seven points to end at −25. Additionally, the delivery times index moved down twelve points to end at −4, while our gauges for inventories were virtually unchanged in August. The finished goods inventory index held steady at 17 in August, while the raw materials inventories index added one point to finish at 19
This evidence continues to cut against my previous expectations for a return to growth after a blip. The downturn evident across surveys and has been persistent for several months now.
There can be little doubt at this point that manufacturing is beginning to recess. I would not be surprised to see Industrial Production peak in August.
Based on our standard understanding of how the macro-economy works, with construction depressed and industry recessing, the US economy may now be entering a recession.
I still don’t swallow it completely, but the data are the data and this does appear to be what it is saying.
A previous version of this post used the singular is in referring to data. It was pointed out by Andy Harless who finally snapped at the incessantly poor grammar and spelling in my posts.