Latest data reflects little change in an underperforming recovery

Raymond Keating
Raymond Keating

A major election is behind us. Yet, little has really changed, and that includes the state of our economy. We’ve been stuck in a grossly underperforming economic recovery after a long, deep recession. Unfortunately, there’s little in the data to tell us that things are changing in any substantive way for the positive.

In fact, serious risks persist for business and the economy on the policy front.

Consider the two latest releases from the Institute for Supply Management.

The November Manufacturing ISM Report was not good news. The manufacturing sector contracted after a couple of months of modest growth. The Purchasing Managers Index registered 49.5 percent, a decrease of 2.2 percentage points from October’s reading of 51.7 percent, indicating contraction in manufacturing for the fourth time in the last six months. The November reading was the lowest level since July 2009.

Of the 18 manufacturing industries, six were growing in November — petroleum and coal products; paper products; furniture and related products; electrical equipment, appliances and components; food, beverage and tobacco products; and computer and electronic products. Meanwhile, 11 industries shrank – apparel, leather and allied products; wood products; primary metals; transportation equipment; chemical products; fabricated metal products; miscellaneous manufacturing; nonmetallic mineral products; plastics and rubber products; machinery; and printing and related support activities.

The November Non-Manufacturing ISM Report showed continued expansion in these sectors. It was reported that the index registered 54.7 percent in November,

five-tenths of a percentage point higher than the 54.2 percent registered in October. This signals continued growth at a slightly faster rate in the non-manufacturing sector.

Eleven non-manufacturing sectors reported growth in November — agriculture, forestry, fishing and hunting; utilities; retail trade; real estate, rental and leasing; finance and insurance; public administration; construction; health care and social assistance; professional, scientific and technical services; information; and other services. Six sectors contracted — mining, educational services, management of companies and support services, transportation and warehousing; accommodation and food services and wholesale trade.

November was the 35th straight month of growth in the non-manufacturing index. But even on this front, the take among industry players was hardly robust optimism. As was reported: “Respondents’ comments are mixed. However, the majority of survey respondents reflect a cautious optimism about current economic conditions.”

As for sentiments on the manufacturing side, it was reported: “Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand. Respondents also express concern over how and when the fiscal cliff issue will be resolved.”

In essence, not much has changed, again, with big policy risks continuing to hang over the economy.

It’s certainly worth noting what one respondent from the fabricated metals products sector declared: “The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed. If the program that is put in place is more taxes and big spending cuts — which will push us toward recession — forget it.”

Mike Frederich, president of MCM Composites and a member of the Small Business & Entrepreneurship Council, summed up his concerns: “All of our products are sold to OEMs [original equipment manufacturers]. We have seen a noticeable decline in our backlog and very few new projects. The upcoming … tax increase on small businesses – The rich? Really? — and the added costs related to Obamacare and the endless stream of regulations will raise our costs and make us less competitive in the world market. My biggest fear is the obvious failure of both political parties to address the fiscal health of our nation. Borrowing $4 billion dollars a day is not a plan and is not sustainable. It is a glide path to financial disaster that will take us all down.”

Our economy and U.S. businesses need to see a strong pro-growth policy agenda implemented by our elected officials featuring substantive and permanent tax and regulatory relief, free trade and sound monetary policy. But we continue to see nothing of the kind. And the economy, business and job creation will continue to lag or suffer.