Although the record-long economic expansion in America continues to chug along at a healthy pace, policy uncertainty has clearly weighed on growth this year. Key unknowns curtailing activity include credit volatility, the upcoming election’s potential effect on future tax rates, and of course the ongoing trade war. Industries more sensitive to such issues have naturally been hit harder, and this is perhaps best seen in recent reports from the Institute for Supply Management (ISM).
Specifically, the ISM manufacturing index rose by less than forecast in October and remained below 50 (contractionary) for the third month in a row. The ISM non-manufacturing index, on the other hand, increased by more than anticipated last month and has not dipped below 50 in roughly a decade. Apart from a resilient expansion in the service-providing sector, the much weaker conditions in the goods-producing arena have yet to meaningfully weigh on the overall economy in part because manufacturing firms account for only around 12.0 percent of total economic output in this country and an even smaller share of employment (8.5 percent). Fortunately, recent clarity on monetary policy and an arguably reduced likelihood of further trade war escalations should be supportive of activity in both industries in the coming months, ceteris paribus.
Sources: Econoday, ISM, Wells Fargo, FRBSL