U.S. Manufacturing Renaissance Turns Into The Dark Ages

The October ISM Manufacturing Index, which has been the official barometer of the U.S. manufacturing sector since 1915, came in with a reading of just 50.1. This was a level barely above contraction.

Of the 18 industries surveyed in the Regional Manufacturing Survey, 9 reported contraction in October: Apparel, Leather & Allied Products; Primary Metals; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; Wood Products; and Computer & Electronic Products.

And of those nine, the energy market in particular continues to struggle the most. One respondent in the survey noted that the effects of the weak energy market are now beginning to bleed into other areas of the economy.

In addition to this, new orders for U.S. factory goods fell for a second straight month in September (down 1.0 %), confirming the manufacturing sector in the United States has hit a downturn. In fact, U.S. Factory Orders have fallen y/y for 11 of last 14 months; and contracted 6.9% from September 2014.

Furthermore, demand for durable goods fell 1.2% in September. While demand for nondurable goods (goods not expected to last more than three years) fell 0.8%. This placed downward pressure on GDP in the third quarter leading to a disappointing 1.5% GDP read.

During the month of September a majority of U.S. states reported jobs losses, as the slowing manufacturing sector weighed on hiring nationwide. The Labor Department recently announced that 27 states actually lost jobs in the month of September. This data belies the rosy headline 271k Non-Farm Payroll report issued for October: the Labor Department releases individual state data a month in arrears.

All this bad news begs the question: Has the former manufacturing renaissance in the United States officially turned back into the dark ages?

Despite huge kudo’s to U.S. ingenuity for inventing fracking and horizontal drilling technologies, the viability of these innovations depends upon an unsustainable bubble in oil prices. Fracking is just one example of the misallocation of capital resulting from faulty price signals derived from central banks’ manipulation of interest rates.