Manufacturing may be tanking, but it hasn’t taken the rest of the economy with it, says one economist on the heels of the poor economic news that greeted the New Year.
In other words, “this does not mean that we should worry about an impending recession,” says Dave Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc., in a report to clients Tuesday. Rosenberg has the credentials to make such calls, having spotted the 2007-09 recession earlier than most.
Monday brought bad economic news from the Institute for Supply Management, whose monthly survey of companies’ purchasing managers is widely followed as a leading sign of what’s happening in the economy.
Its report said an index based on the survey fell again in December and was below 50 for the second straight month. Readings below 50 generally mean the manufacturing side of the economy is contracting.
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A regional index covering Kansas, Missouri and seven other Midwestern states echoed the gloom.
“What, me worry?” was Rosenberg’s response to clients.
“There will be no shortage of ‘oh me, oh my’ recession calls out of this back-to-back, sub-50 ISM manufacturing tallies,” Rosenberg wrote, “but outright economic downturns do not begin until the ISM manufacturing (index) breaks below 42.”
The institute’s report said readings “above 43.1 percent, over a period of time, indicates that the overall economy, or gross domestic product, is generally expanding.”
December’s number reported Monday was 48.2, down from 48.6 in November.
Those poor readings make sense following a year of tough blows for the U.S. economy, from Rosenberg’s list of the rising U.S. dollar, Greece’s debt crisis, struggling emerging markets and China’s economic slowdown, to others’ roster of headwinds that include troubles in the bond market, pressure on corporate profits, plunging oil prices and the Fed’s shift toward raising interest rates for the first time in a decade.
Rosenberg told CNBC Tuesday that those and other uncertainties cloud the outlook for the economy and the stock market.
Tuesday’s report to clients, however, emphasized that recession is not on his worry list.
Rosenberg’s analysis noted that the manufacturing index fell below 50 earlier in this recovery without leading to a recession. It also fell to 46.8 during the 1998 “Asian meltdown” without a recession following, to 45.5 during the 1995 “Tequila Crisis” without a recession, and to 47.1 during the 1985-86 plunge in oil prices without a recession, he wrote.
Two reasons not to worry: First, manufacturing accounts for only 10 percent of the U.S. economy these days, Rosenberg noted. And, he added, Americans have their wallets open, with consumer spending is climbing at about a 3 percent pace and has been for more than a year.