Is a US Economic Slowdown on the Horizon?

Weak Manufacturing Measures Raise Concerns

Key Points

• Manufacturing activity has slowed in recent months.
• This could indicate a broader economic slowdown.
• Economists are watching the situation closely.

The health of the manufacturing sector is often seen as a barometer of the overall economy. Manufacturing contributes about 12% to the U.S. gross domestic product (GDP), making it a major driver of growth. So, when manufacturing slows, it can raise concerns about the economy's overall health.

In recent months, there have been a number of signs that manufacturing activity is slowing. One key indicator is the Institute for Supply Management (ISM) Manufacturing Index, which measures the overall health of the manufacturing sector. The ISM index has declined for three consecutive months, and it is now at its lowest level since June 2020.

Other indicators also point to a slowdown in manufacturing. For example, the number of new orders for manufactured goods has declined in recent months. In addition, the backlog of orders has also declined, indicating that businesses are not placing as many new orders as they were in the past.

The slowdown in manufacturing is likely due to a number of factors, including the ongoing COVID-19 pandemic, rising inflation, and supply chain disruptions. The pandemic has led to a number of businesses being forced to close or operate at reduced capacity, which has reduced demand for manufactured goods. Inflation has also made it more expensive for businesses to purchase raw materials and other inputs, which has reduced profit margins and made investing in new equipment more difficult.

The slowdown in manufacturing is a concern because it could lead to a broader economic slowdown. If manufacturing activity continues to decline, it could lead to job losses and a decline in consumer spending. This could create a vicious cycle that leads to a recession.

Economists are watching the situation closely and they will be looking for signs of improvement in manufacturing activity in the coming months. If the slowdown continues, it could increase the chances of a recession in the United States.

Sources

• ISM Report on Business
• Manufacturing and Trade Inventories and Sales
• U.S. economy grew at a 2.6% annualized rate in Q2, below expectations