Just Because There's A Manufacturing Downturn Does Not Mean A Recession Is Coming

September marked the worst month for U.S. manufacturing since the great recession, according to the Institute for Supply Management’s manufacturing index also known as PMI. The index was below 50 for the second month in a row (47.8 – September, 49.1 – August), which indicates the industry is contracting.

So, what does this mean for manufacturing as we look towards the future?

Although PMI indicates headwinds for the industry, it is important to note that there are a number of other indicators that should be considered when looking at the health of the U.S. economy. It is true that our current political and trade environment is created uncertainty in the marketplace. The lack of formal trade agreements is perpetuating constant change in tariff activities. And, nearly every day, the current administration utilizes social media to advocate for and make significant announcements that affect the global economy.

Last quarter marked 10 years of economic expansion within the country. Also, during that time interest rates remained low and more recently experienced two cuts stimulating the investment community. Consumer confidence is strong and stable, the housing market is experiencing growth and available disposable income continues to drive the economy.

All of this signifies that the U.S. economy is currently plateauing – it is no longer expanding at the rate that is has been in the past.

Today, the manufacturing industry is evolving. Based on all of the uncertainty, it is cautiously taking action to better prepare for the future. As we look at future production forecasts there is very little evidence that significant change is happening that would warrant a deep recession like we experienced in 2009.  For example, in the automotive industry, LMC Automotive, leading industry forecasters, predicts North American light-vehicle production to drop 300,000 units in 2019, which is only a .02% small drop. It is more likely that the U.S. economy will experience a correction like we saw in 2001.

Looking at all the indicators it has become clear that as a whole there is a greater focus on the negatives and not the positives. This heightened awareness may be leading to the country believing that we are going into a significant recession when in reality the economy, and specifically the manufacturing industry, is responding to the evolving market.

There are varying opinions across manufacturing, but one thing remains clear – volatility will continue for the near future. It is prudent for businesses to be cautious, but not overreact. Company’s need to keep a close eye on all aspects of the global economic environment and maintain open communications with their customers.

The time is right for manufacturers to look for opportunities to improve efficiencies and become more competitive in the global marketplace.