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Manufacturing, Employment & Cyclicals - December 5, 2018

Two Takes on Manufacturing

This week, as markets have adapted to the Whitehouse and various economic advisors playing ‘he said she said’ regarding China and tariffs, two manufacturing PMI’s were published with different results. On the one hand, the ISM Manufacturing data came in at a relatively robust 59.3, which ”corresponds to a 4.9-percent increase in real gross domestic product”. The ISM respondents highlighted the effects of current and potential future tariffs, reporting front loading of import orders, decreased activity, and shifting order timing. On the other hand, the Markit Manufacturing data signaled “that the economy will likely see growth slow to a 2.5% rate in the fourth quarter.” Despite the lower projected GDP growth, the Markit data was not too gloomy. Chief Business Economist Chris Williamson said,

“Dig deeper behind the headline numbers and the picture brightens further. New orders rose at the fastest rate for six months, prompting manufacturers to continue to expand capacity to meet demand. The pace of job creation remained among the highest seen over the past decade”.

Employment Trends and Cyclicals 

In an article from Indeed on the State of the Labor Market, by Martha Gimbel and Jed Kolko, there was mixed news for employment. On the positive side, the authors highlight that “2018 has been a banner year for the job market”. They say as job growth picked up, workers found jobs, and “wage growth has definitively accelerated”. And “best of all, these gains were widely shared. Workers across the earnings distribution saw solid wage growth.”

However, “this good news won’t go on forever”, and the question is “whether the end... will be graceful or ugly,” said Gimbel and Kolko. They cite a number of headwinds, including demographics, see last week’s TFTD, and warn that “the sectors that led to extraordinary job growth in 2018 are volatile”.  And, “More worryingly, these goods-producing sectors, mining, construction, and manufacturing] are projected to grow only minimally longer-term”. They conclude with a great hedge: “[The wildcards will] determine whether the relatively predictable headwinds... will lead to continued growth, a graceful slowdown, or a rough landing”. Up, down, or sideways, got it!