(SPONSORED) — The manufacturing report is considered a leading indicator of where the economy is heading, according to Tatiana Bailey, Director of Data-Driven Economic Strategies (DDES).
The manufacturing index comes from a large survey of manufacturers across the United States. An index above 50 means that the industry is expanding while an index below 50 means the industry is contracting for four consecutive months, says Bailey.
The index has been below 50, but not by a tremendous amount.
“This isn’t terribly surprising,” states Bailey. “As the economy cools, people don’t buy as much stuff. And that means manufacturers slow their levels of new orders and production.”
What Bailey does consider to be surprising in the latest report is the big jump in the prices paid component.
“This means that manufacturers are paying more for the materials they use in manufacturing of the products they make and that you and I buy,” says Bailey.
Bailey explains why she considers the manufacturing report a leading indicator.
“If manufacturers are paying more to make our widget, we will eventually pay more when we buy the finished product,” Bailey states. “The survey also showed that manufacturers are not wanting to lay off workers because of how hard it is to find labor in the first place.”
It appears elevated prices are going to be with us for a while, according to two factors cited by Bailey.
“One, inflation rates are now taking back up in some European countries, which is the opposite direction of what we want and what many analysts were expecting,” claims Bailey. “Even with the warmer winter and lower-than-expected natural gas prices, inflation is not abating in most of Europe.”
Secondly, housing costs are not coming down enough to make a material difference in inflation as a whole at this time, per Bailey.
“In high growth states and regions like ours, housing costs are not likely to come down due to the housing shortage and some evidence seems to be mounting that at least for the remainder of 2023.”
Higher prices across the U.S. and the globe are at best going to dampen economic growth and at worst create a recession, Bailey explained.