US manufacturers grew in July at the slowest pace in three years thanks to festering U.S. trade disputes that have hurt exports and undermined the global economy. It was the lowest number since August 2016, as the FRED graph shows.
“The July PMI registered 51.2 percent, a decrease of 0.5 percentage point from the June reading of 51.7 percent,” reported Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.
“The manufacturing New Orders Index registered 50.8 percent, an increase of 0.8 percentage point from the June reading of 50 percent”, said Fiore: which means orders are stagnant; neither increasing or decreasing. “The Production Index registered 50.8 percent, a 3.3-percentage point decrease compared to the June reading of 54.1 percent. The Employment Index registered 51.7 percent, a decrease of 2.8 percentage points from the June reading of 54.5 percent.”
It’s possible the December 2017 tax cuts prolonged higher manufacturing growth through 2018, but the FRED graph shows that new orders had already begun to rise in the fall of 2016, when real Q3 GDP growth exceeded 4 percent, in part due to a roaring housing market, and consumer spending heartened by falling long term interest rates and strong job growth.
MarketWatch gives a “gentleman’s C” for July’s unemployment report just out that showed a slowdown in payroll growth and downward revisions to past months. Nonfarm payroll rose 164,000, but much of the strength came for a second month from government payrolls which, reflecting the heavy government spending that’s underway, rose 16,000 to top June’s 14,000 rise.
Manufacturing also posted a strong gain of 16,000 which easily tops the consensus range even if the hours in the sector fell in the month, says Econoday. Payroll gainers include a second straight 38,000 rise for business services “which points to demand for contractors and temporary workers, as well as an 18,000 rise for financial activities.” On the downside is yet again retail which fell 4,000 in the month to extend its very severe contraction.
Trump and the Republicans are blaming the current growth slowdown on the overpriced US Dollar, because they believe an expensive Dollar in relation to foreign currencies is the culprit that is hurting manufacturing and exports, hence their push to lower the Federal Reserve overnight rate that could lower its value against other currencies.
The Fed did drop their rate on Wednesday one-quarter percent to a range of 2-2.25 percent, but it’s really trade wars that are reducing economic growth worldwide, which is now very dependent on the cross-border exchange of goods and services.
Dropping short term rates at or below the inflation rate will boost inflation, but it can’t be the cure-all for slower growth. It can’t be a substitute for making productive investments like infrastructure that should be a priority.
Fed Chair Greenspan and President Bush/Cheney kept interest rates too low in order to finance their wars on terror in early 2000 while cutting taxes. But it resulted in asset inflation and the housing bubble, as I said last week. Will that happen again, unless we begin to use our dollars in more productive ways, rather than to pay for tax cuts for the one percent?
Harlan Green © 2019
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