Why U.S. Economy Shrugs Off Stalling Manufacturing

Investors Busniness Daily ^ | 10/01/2015 | JED GRAHAM

[expat_panama]

The manufacturing sector continued to cool in September, registering the slowest growth in more than two years as economic weakness around the globe and a stronger dollar hit exports.

But the lack of momentum, outside the auto sector, hasn't kept the rest of the economy from chugging along. Autos zipped out of showrooms last month at the fastest rate since July 2005.

The Institute for Supply Management's U.S. factory gauge slid 0.9 point last month to 50.2 — just above the 50 neutral level. Exports were the weakest link in a sluggish report, contracting at a rate that matches the worst level in three years. The export index hasn't been any lower than this since April 2009.

Yet the lackluster pace of the globally exposed factory sector stands out in contrast to solid domestic consumer spending and rebounding construction.

Who Needs Factories?

Unless the global economy and financial markets look especially fragile, it won't keep the Federal Reserve from starting to normalize interest rates later this year.

The economy is likely to grow 2.5%-3% in the second half of the year, propelled by the consumer, with an assist from construction and business investment, said Harm Bandholz, chief U.S. economist at UniCredit Research.

"In this environment, the Fed will likely begin to raise interest rates (by 25bp) at the December FOMC meeting," Bandholz said.

Because manufacturing represents only about 12% of economic activity, he said that the ISM would have to fall to about 43 before a recession is in the cards.

ADP's jobs report on Wednesday underscored that the economy can grow respectably ...

[Zeneta]

The race to the bottom is not over.

There will be more QE and soon, or this entire house of cards will come crashing down.

The Feds have no other choice.

[mrsmith]

Divide it into producing wealth (manufacturing) and servicing it's production (services). Farms and factories are both manufacturers who need services. GM or a farm pays for insurers (the insurers do not pay for GM or the farm).

Everybody needs everybody but it is the manufacturer who pays- out of the wealth he produces. In extremis, no manufacturing = no pay for services. And this producer economy of manufacturers supports the consumer economy. Or government taxes and borrows wealth to support it like we do now.

[expat_panama]

...it is the manufacturer who pays- out of the wealth he produces...

Right.  --and when you need medical aid you're suddenly not concerned with all that true (oh goodness!!) w e a l t h (oooohh) that comes only from the factory and you gladly swap all those say, TV sets for some of those puny mere services (yeach spit) that the doctor creates so you don't die.

[mrsmith]

A doctor is a good reason to create wealth since one might not treat you for free! In economies that create little wealth there are, of course, few doctors.
I think we agree there are many reasons wealth is a good thing to create and many good services it makes available.

[PeterPrinciple]

Because manufacturing represents only about 12% of economic activity, he said that the ISM would have to fall to about 43 before a recession is in the cards.

---

So any guesses what the other 88% of economic activity is?

[ROCKLOBSTER]

Retail?

[Trailerpark Badass]

People have put off buying a new car as long as they could.

[expat_panama]

any guesses what the other 88% of economic activity is?

Retail?

The article may have bad data or a weird definition of manufacturing because the BEA  (the folks that make the GDP) say that "Good Production" is 22%:

We need investing and government almost as much as we need goods producers, but we need services more.  Like, we buy one car so we can drive to a lot of stores, we buy one TV so we can watch a lot of programs, etc. Whether we say we like it or not, this is what we do.

[ROCKLOBSTER]

Gubmint 17%!

Wow, gubmint “produces” 17% of the wealth in the US. So exactly what of value does it make, and where do I go to get my “fair share”?

[bert]

——Autos zipped out of showrooms last month at the fastest rate since July 2005.——

based on the number of TV ads, I suspect the heavy auto sales result from strongly discounted ‘15 model clearance

[HiTech RedNeck]

It used to “make” order, but now it makes chaos.

[bert]

all wealth is created by engineers and their services and companies

[HiTech RedNeck]

It used to “make” order, but now it makes chaos.

(And if we really wanted chaos we could get it a lot more cheaply than what we are paying for it today. Okay, okay, a joke.)

[HiTech RedNeck]

all wealth is created by rednecks.

[ROCKLOBSTER]

But it actually creates new wealth which service ‘industries’ mostly do not.

Of course it does. All the "trades" are services. The plumbers, carpenters etc exchange their "services" for cash. Does a completed house have more value than a pile of logs, and a load of plumbing and electrical supplies?

The architect, excavator, carpenters, electricians, plumbers, dry-wallers, landscapers etc did not simply get together and build that house just for fun or...

OUT OF THE GOODNESS OF THEIR HEARTS!

[ROCKLOBSTER]

all wealth is created by engineers and their services and companies

Most of the economy is made up of small business.

[bert]

all rely one way or another on the work of engineers

[HiTech RedNeck]

unless you’re jimmy carter at a habitat for humanity site or something...

anyhow what’s wrong with services. everything is a service, even if the medium is furnished by the one doing the serving.

[HiTech RedNeck]

and they in turn all depend on the work of rednecks

[P.O.E.]

Free trade calculations need to adjust for the perceived value of human life.

Without cutting regulations, tort reform, etc. labor will remain too costly here in the US.