Though still barely negative in January, the RSM MOI is hinting at increased manufacturing activity in the month or at least a bottoming out of the manufacturing recession.
The Conference Board’s Leading Economic Indicator moved slightly lower in December, continuing a downward trend that began in the last months of 2018. Movement of the leading indicator has traditionally coincided with trends with industrial-sector activity.
In this current cycle, the leading indicator has been propped up by a robust stock market and accommodative credit conditions, which appear to be the product of the 2017 tax cuts and the spurt of consumer spending that followed. Still, the LEI has been flat or negative for nine of the 15 months since September 2018, when the trade war and increased policy uncertainty began to have an effect on the real economy.
A case in point is the manufacturing recession, which has been evident in the declining trend in manufacturing sales and in surveys of manufacturers by the regional Federal Reserve banks and the Institute of Supply Management.
The RSM Manufacturing Outlook Index — a composite index based on those six regional bank surveys — has been negative since June 2019. Nevertheless, there are preliminary signs that manufacturing is perhaps bottoming out, with dramatic improvements reported in January by the Philadelphia and Richmond Fed surveys, a second month of improvement in the Empire State survey, and less negative January reports from the Dallas and Kansas City surveys.
The RSM MOI anticipated the declining trend in manufacturing and trade sales since mid-2018, and has been negative for all but one of the past 13 months. Though still barely negative in January, the RSM MOI is hinting at increased manufacturing activity in the month or at least a bottoming out of the manufacturing recession.
The widely followed ISM manufacturing index will be released on Monday, Feb. 3, and is expected to show a continuation of the manufacturing recession, though at a slightly improved level. The median forecast is for the ISM index to reach 48, a slight improvement over the 47.2 reported in December.