August 7, 2022

Off the Charts: Strong Manufacturing Revival Seems to Be Fading

Surveys of manufacturing companies around the world indicate that business is still improving for many of them, but that the pace of growth has slowed.

In the United States, the Institute for Supply Management reported that the overall reading for its survey in May fell to 53.5 from 60.4. Figures above 50 indicate that more companies say business is improving than say it is getting worse, so that is hardly a sign of a new recession.

Still, it played into a rising fear that the recovery is slowing again at a time when unemployment remains high.On Friday, the Bureau of Labor Statistics reported that the rate rose to 9.1 percent in May, up a tenth of a percentage point.

The drop of 6.9 points was the largest one-month decline since January 1984, a fact that received considerable attention. Less noted was the fact that the earlier decline came off even higher figures and did not presage a return to the recession that ended in late 1982.

The figures show the direction of change, not the magnitude or the existing level. Extremely strong numbers can persist for long periods only if conditions are continually improving.

The accompanying charts show three components of the survey, which is conducted in many countries around the world, and indicate that the slowing of growth is a more general phenomenon. For ease of understanding, the figures are converted to place a 50 reading — one that indicates an equal number of positive and negative responses — at zero.

The slide appears to be worse in Britain, where a strong revival late last year and early this year seems to have vanished. There, readings came in at negative levels for both output and new orders, the first time that had happened since May 2009, when the credit crisis was only beginning to ease. But more companies there continue to say they are hiring rather than reducing payrolls.

In the United States, the figure for new orders remains barely positive, and the output figure also declined, although it remains positive. The figure for employment also fell, but it remained at a level that historically has accompanied good jobs figures. The employment index has been over 55, or 5 in the chart, for 16 consecutive months, the longest such stretch since 1965.

Labor Department figures indicate that the number of manufacturing jobs hit bottom in December 2009 and that employment has been rising more rapidly in that sector than in the economy as a whole, although it fell by 5,000 jobs in May.

On average, the euro zone appears to be stronger than any of the other countries shown, but this is a case where averages can be misleading. The German boom cooled only a little, and France remains strong. But already weak figures in Greece are getting worse, and Spanish manufacturers see some deterioration.

In Japan, the figures show some revival from the blow caused by the earthquake and tsunami in March. The output index went above break-even levels after falling sharply, but as a group, Japanese manufacturers still say they are reducing employment.

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