The manufacturing sector is signaling extreme confidence in a rapid end to the pandemic-induced economic shutdown and to the global manufacturing recession that preceded it.
This reaffirms our robust growth outlook of a 7.2% economic expansion for this year.
From our vantage point, this reaffirms our robust growth outlook of a 7.2% economic expansion for this year and our expectation that one million jobs will have been added to total employment when the March jobs report is released on Friday.
This can best be observed by the jump in the RSM US Manufacturing Outlook Index to more than two standard deviations above normal (which we define as zero in computation of the index). An index value above two has occurred only three other times in the past 50 years:
- In 1976, after the period of oil embargos and stagflation
- In 1983, after the worldwide double-dip recession
- In 1988, at the tail end of the Reagan-era spending boom
The importance and rarity of a two-standard-deviation move might best be appreciated by looking at previous moves in the opposite direction. The RSM US Manufacturing Outlook Index has fallen below two standard deviations during each of the recessions in the modern era, reaching four to five standard deviations below normal expectations during the worst downturns.
So when the index moves two standard deviations above normal, it could signify a bubble in the making, or, more likely in this case, rational exuberance after two years of policy distortions and a public health crisis.
For reference, the RSM US Manufacturing Outlook Index and the widely followed Institute for Supply Management manufacturing index tell the same story most of the time, just on different scales. So this week’s forecast is for the ISM purchasing managers’ index to remain above 60, a level seldom reached and which would suggest an expansionary climate for manufacturing.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
