Manufacturing Index Suggests Economy Is Starting to Contract

We’re at a point now where there seem to be about equal numbers of good and bad signs related to the economy. Today we got one of the bad ones:

Anything under 50 indicates a weak economy. Bloomberg explains:

U.S. factory activity unexpectedly contracted in August for the first time in three years as shrinking orders, production and hiring pushed a widely followed measure of manufacturing to its lowest level since January 2016.

The Institute for Supply Management’s purchasing managers index fell to 49.1 in August, weaker than all forecasts in a Bloomberg survey of economists, data released Tuesday showed. Figures below 50 signal the manufacturing economy is generally contracting. The group’s gauge of new orders dropped to a more than seven-year low, while the production index shrank to the weakest level since the end of 2015.

This has happened before a couple of times since the end of the recession, and both times the PMI Index turned back upward after a few months below 50. On the not-so-bright side, the slide over the past 12 months has been especially steep, and steeper still over the past six months. When you lose more than six points in six consecutive months without even a hint of a turnaround, it’s not a good sign.

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