The US manufacturing sector has now contracted for two consecutive quarters, according to the Federal Reserve, raising concerns a general recession is drawing near. But those fears remind me of a triathlon I recently completed. With burning lungs and a pounding heart, I’d really flagged during the swimming section. Then I recovered and finished fine. So does a limping manufacturing sector really mean the American expansion will end?
A recession is a bit like the death of a star — you can only see it clearly after it happens. We can’t be certain manufacturing is leading the US to contraction. But it could be a portent: industrial production was down 1.9 per cent annually in the first three months of the year and 1.2 per cent annually in the second quarter. Manufacturing production was down 1.9 per cent and 2.2 per cent, respectively. The definition of a technical recession is two quarters of contraction. And while manufacturing output grew relative to the previous month in May and June, it appears to have been largely driven by auto and auto part production, widely forecast to slow later this year. Automakers such as Ford and Nissan are cutting jobs and earnings forecasts.
President Donald Trump’s trade policies are receiving much of the blame. Not only have trade tensions contributed to weaker demand from China for US goods, they have disrupted supply chains and inventory management for US manufacturers. Operating a business when you don’t know what the rules will be is like trying to complete a triathlon with a weight around your neck.