Manufacturing Bumps Up

Judging by the hysteria on Wall Street this morning an impartial observer would be forgiven for thinking we had suddenly burst free of the grip of mediocrity. No such luck. What caused the rumpus was a very slight increase in the Institute of Supply Management’s Index of manufacturing activity. The index bumped up from 55.5% in July to 56.3% in August. Hardly the stuff of triumphant or meteoric growth, but too bad either.

Such is the state of our economy that even modest numbers are greeted as the next great breakthrough.

The simple facts are these:

Any reading in the index over 50.0% suggests – it is not an exact science – that the manufacturing sector is expanding. We have now seen 13 straight such readings, so we can say with near certainty that manufacturing is, indeed, well beyond the recession. But that reading is still well below that of a full throttle recovery. Instead it is much more suggestive of a sideways crawl.

Still, let’s not pour cold water on the yahoos on Wall Street. Allow them their fun.

My take is somewhat less euphoric. The data says we are out of recession. We have known that for a long time. It also says that we are still limping. We know that too. More importantly is also tells us that we are not declining either. Factories are getting more, not less, busy. One of the hidden statistics in last week’s revision of GDP was the domestic final demand growth of over 4.0%. That growth was masked by bad – actually awful – trade figures, and weakness in State government spending, but it is sufficient to feed into increased factory activity.

What does this mean?

That growth is still ongoing. It is weak, in the 1.0% to 2.0% range, but it is tangible. More to the point: every time we read an economic statistic that stays steady or increases we are reminded that the much discussed “double dip” recession is still a talking point not an actuality. We are avoiding a new downturn by the skin of our teeth. So us grown-ups should stay calm and keep on with our modest expectations.

As for the reaction on Wall Street? They’re just spoiled children. Let them play. And take no notice of their tantrums.