Does manufacturing matter?
8th October, 2019
As US manufacturing slides, how important is it for global economic growth? And would trade talks resolve the problem?
• The most recent ISM PMI reading hit 47.8% in September, the lowest since June 2009
• Trump’s policies have hurt rather than boosted US manufacturing, which may dent his re-election chances
• Consumer strength remains more important for developed market growth
Germany may have been going down the pan, Japan struggled to beat deflation, the UK had its own problems, but the US was always the tough guy. Then the most recent ISM US Manufacturing statistics report their lowest reading in a decade.
Donald Trump’s distinctive approach to international relations has partly been possible because of the strength of the US economy. His trade war has hurt pretty much every other major economy more than it has hurt the US. Presumably this is a strategic calculation on his part.
However, the most recent ISM data is likely to give him pause for thought. The reading hit 47.8% in September, the lowest since June 2009 and the second consecutive month of contraction. However he spins it, this is bad news for a President elected on bringing manufacturing jobs back to the US with a re-election battle looming.
There are two questions here: can the problem be solved by backing away from the trade war? And does the fate of global manufacturing matter significantly for the broader UK/US/Eurozone economies?
It feels as if the trade war has come too far to be rolled back. Talks are planned, there have been tariff exemptions, but these don’t get around the vast and intractable problem – the US’s trade deficit with China. The immediate problems may be solved, but the battle for global economic supremacy remains. Donald Trump may have gone too far to rein this in, in time for his re-election bid. Some concessions would help but are unlikely to see manufacturing revive in the short-term.
The question of whether it matters is more complicated. Indeed, manufacturing weakness is a drag on economies that are struggling to grow anyway, but it forms a relatively small part of consumer-led economies such as the US and UK. While jobs losses in the manufacturing sector could bleed into consumer spending, their impact is marginal. In outsourcing manufacturing to emerging economies, developed markets have rid themselves of the problem.
Manufacturing weakness gathers headlines and exercises politicians, but it’s not the biggest problem for most developed market economies. It may be a problem for Mr Trump, but that’s another matter.
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