A ‘peak’ in economic activity sounds scarier than it really is
For some time, economists and strategists have been eyeing a peak in U.S. economic growth.
And manufacturing activity data released Monday suggests that time might be now — unless you look beyond the headline numbers.
The Institute for Supply Management’s manufacturing purchasing managers index (PMI) out Monday registered a reading of 59.5 for July, down from June’s reading of 60.6. This data shows the manufacturing sector grew last month, albeit it at a slower pace.
Any reading over 50 indicates the sector is growing while readings under 50 represent contraction. This report also marked the third straight month the ISM’s manufacturing PMI has dropped, after peaking at 64.7 in March.
But the headline index overlooks what the internals of this data make clear, which is that demand continues to overwhelm the supply side of the economy.
“The ISM Manufacturing PMI was very solid under the details,” said Neil Dutta, head of economics at Renaissance Macro Research. “Anyone that says anything to the contrary does not know what they are doing.”
In other words, debating whether or not the economy is at, approaching, or past its moment of “peak growth” for this economic recovery doesn’t help us understand what this data tells us. Firms cannot produce enough to fulfill customer orders, and inventories are being drawn down to fill the gap.