Dec 2, 2022 - Economy

The factory slowdown is here

ISM Manufacturing Index
Data: Institute for Supply Management; Chart: Tory Lysik/Axios Visuals

A key economic indicator is flashing red: An index measuring factory activity shows a contraction for the first time since 2020, according to the Institute for Supply Management's index of manufacturing activity released Thursday.

  • The measure, which pulls from a survey of manufacturers about business conditions, dipped below the 50 threshold that separates economic expansion from contraction — driven by a decline in orders for new stuff.

Why it matters: A contraction could be a signal of an economic slowdown to come. (And, as we say often, this is basically what the Fed wants.) Analysts on Thursday trotted out the R-word:

  • The level is "consistent with a stagnation in broader economic growth," Paul Ashworth, chief North America economist at Capital Economics, said in a note Thursday. Further declines could be coming, he said, "leaving it consistent with a recession."
  • "Manufacturing's contraction is likely a harbinger of a recession that we expect to begin in Q2 2023," Oxford Economics said in a note about the data.

Yes, but: Sounds scary, but keep in mind that at this point most recession forecasts are predicting a relatively mild downturn. Also, it's just one data point.

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