Manufacturing's lingering malaise

The backdrop seems better for American manufacturers, but until the data show actual improvement caution is warranted.

  • By Justin Lahart,
  • The Wall Street Journal
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The good news is that the manufacturing sector ought to start doing better soon. The bad news is that it isn’t doing better already.

On Monday, the Institute for Supply Management said its manufacturing index came in at 48.1 in November, down from October’s 48.3 and below the 49.4 economists expected. Anything below 50 indicates a contraction in manufacturing activity, and November marked the fourth month in a row the index was below that mark.

The problems manufacturers face are manifold. First, there are the continuing tariff pressures and uncertainties from the U.S.-China trade spat. Next, there is slower overseas growth. Then there is the grounding of Boeing’s (BA) 737 MAX, which is hurting the aircraft maker’s suppliers. After that, there is the slowdown in U.S. oil and natural-gas production, which is bad for the makers of drilling equipment. Finally, there may be lingering aftereffects from the General Motors (GM) strike that ended in October.

Better times should be coming. Trade tensions between the U.S. and China seem to have cooled some and the GM strike is moving further into the rearview mirror. The global economy appears to be on the mend, as evidenced by the rebound in Chinese manufacturing indexes.

Boeing’s problems persist, but the company is hoping to deliver 737 MAX aircraft to airlines before the end of the year. Oil prices are drawing support from the prospect of longer production cuts by the Organization of the Petroleum Exporting Countries, while in the U.S. the oil market may be far tighter than many people assume.

What is worrisome is that on many counts the improving backdrop for manufacturers seems like it should already be showing up in the data. Indeed, as Jefferies economist Thomas Simons points out, there were elements of the previous manufacturing report that suggested the sector was on the mend. A subindex for new orders rose to 49.1 in October from 47.3 in September. However, Monday’s report showed it dropped to 47.2.

The best bet is that November was just a temporary setback, and that data in the coming months will make it clear that the bleeding in manufacturing has been stanched. But until the data actually show it, there is reason to be nervous.

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