Manufacturing – Some Red Flags

Just a few brief thoughts on this morning’s manufacturing data which continues a streak of weaker than expected data in this space.

Total industry production was very weak at -0.5%.  The manufacturing component registered a -0.4% decline.  Analysts had been expecting a 0.1% rise.  Durable goods were particularly weak at -0.6%.  Total capacity utilization declined to 77.8 versus expectations of 78.3.  In other words, this report was kind of a disaster.

As you can see in figure 1 the economy remains well below its potential.  The current readings are still consistent with many past recessionary environments.  So it’s not surprising that this environment still feels like a recession to many.  That’s because, in relative terms, we’re in the midst of a very meager recovery.

Figure 2 updates the composite real-time PMI index which declined from 2.5 to 1.1 as of this morning’s data.  In addition to the industrial production data the NY Fed reported a weak manufacturing environment with the first negative reading there since January.  The composite index is basically hugging the contraction line so manufacturing is a very weak segment of the economy.

A few key takeaways:

  • This is all consistent with a low inflation environment.  
  • This is all consistent with a muddle through environment.
  • This is not yet a recessionary environment.
  • This is nothing to cheer about.


(Figure 1 – Total Capacity Utilization)


(Figure 2 – Composite Real-Time PMI)


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

More Posts - Website

Follow Me:

  • Cowpoke

    Wow, that Total capacity utilization trend looks like it has been declining for years.
    I wonder what metrics play the largest part in the long term decline?

  • DismalEconomist

    In terms of the Kalecki profit equation, where would this manufacturing data show up, if at all? Is industrial production a component on investment? I’m a bit lost on what data points that receive significatn media attention would fall in to the investment category.

    If industrial production is considered investment, this coupled with the shrinking deficit according to the CBO puts a lot of pressure on net exports and consumer credit to lift earnings. I’d say the YEN/USD rate is also going to put negative pressure on US corporate earnings, so does the story boil down to household mortgage credit expansion with housing starting to see a modest recovery.

  • FrankH

    Nothing to see here. Keep moving. Don’t hold up the line to get into the stock market. Please keep moving. Everything will be fine. Don’t look at this slow motion train wreck.

  • Andrea Malagoli

    This type of negativism should be made “un-patriotic”. Everything is as good as it has ever been. Just look at the stock market! If you believe in a lie long enough, it will become reality.

  • http://pragcap Michael Schofield

    Sounds like a low interest rate, high PE environment to me. Not bad for those with bazillions, very bad for everyone else. Mr. Market, you may rally.

  • Steve w

    I’m starting to sound like broken record: we may be in the midst (or perhaps the early segment) of the longest “muddle through” in our lifetimes. Very fragile. No wonder rail freight trends are weak.

  • http://pragcap Michael Schofield

    BTW we’re just about going vertical on the SPY here, probably not a good time to jump in with both feet, easy does it.

  • jt26

    Cullen, are you worried about investment (ex-residential)? This year, at least for some tech and telecoms that I follow, doesn’t sound that positive on either their own capex or customer spending, at least not positive enough to offset the projections on how fast the federal deficit is declining (ref: recent CBO projections).

  • Alberto