Let’s close the work week with a surprisingly good piece of news about the manufacturing sector. The Commerce Department released figures yesterday indicating that, by one key measure, it had a knock-out third quarter of last year – at least by recent standards. Unfortunately, there’s a catch. These figures describe developments that may already be out of date.
The new figures were contained in Commerce’s GDP (gross domestic product)-by-industry report, which isn’t all that closely watched by investors in particular because it comes out with a substantial time lag. That’s why yesterday’s report only took the story up to last September.
At the same time, the manufacturing results were impressive. The most important looked at a gauge called “real value-added” – which as I’ve explained before, tries to eliminate the kind of double-counting that takes place when, for example, an auto part is recorded as output when it gets shipped from the factory, and then gets recorded again as a piece of the finished vehicle.
The findings: From last June through last September, domestic manufacturing grew by an inflation-adjusted 2.6 percent at an annual rate. That’s the best such performance by far since the second quarter of 2014. And even though the actual quarterly growth rate of 0.65 percent in real terms sounds much less impressive (2.6 divided by four), progress is progress.
As RealityChek readers know, there’s another government measure of manufacturing output that’s widely followed – the Federal Reserve’s real production figures – and they’re issued with just a one month lag. These more recent figures are subject to the double-counting problem, but they roughly track the value-added numbers. And their fourth quarter real growth of 0.2 percent represented a significant slowing from the third quarter’s 0.8 percent rate. In fact, unless production doesn’t pick up in January, manufacturing will have stumbled into a technical recession (net shrinkage over two straight quarters).
The Fed figures will be revised of course, but if form holds, value-added growth looks set to decelerate, too. That is, as with wage inflation, if you’re looking for a rebound in manufacturing production, you may already have missed it.