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Elizabeth Warren issued a warning about the economy with the dire headline "The Coming Economic Crash — And How to Stop It."
In a post on Medium, the Democratic presidential candidate listed a number of red lights flashing, and one of the more troubling ones was manufacturing.
"Despite Trump’s promises of a manufacturing ‘renaissance,’ the country is now in a manufacturing recession," Sen. Warren, D-Mass., wrote. "The Federal Reserve just reported that the manufacturing sector had a second straight quarter of decline, falling below Wall Street’s expectations."
Warren has her numbers right, and a range of stats point to a slowdown in manufacturing. The disagreement lies with what that cooling means, and whether the "R" word applies.
• The technical definition of an overall economic recession was met when the industrial production index from the Federal Reserve fell for two quarters in a row.
• But the number of manufacturing workers continues to climb.
• Other indicators show manufacturing is growing, but slower than before.
In July, the Federal Reserve released numbers showing that industrial production dropped at an annual rate of 1.2% in the second quarter, and that came on top of a decline in the first quarter. Technically, two back-to-back quarters of falling growth amounts to a recession.
Warren’s post linked to a MarketWatch article, in which Pantheon Macroeconomics chief economist Ian Shepherdson said, "the sector is in recession."
But economist Barry Bosworth at the Brookings Institution said Warren’s phrasing goes too far.
"Manufacturing is now in the midst of a significant slowdown, but it is too small today to associate with terms like recession," Bosworth said.
Bosworth said manufacturing numbers bounce around much more than the U.S. GDP, the measure of the entire economy. The economy has grown continuously each year since 2010. As this chart shows, industrial production has gone up and down throughout that time. And the recent drop is, as Bosworth said, not unusually deep.
Bosworth also noted that there’s a big difference between saying the entire economy is in recession and that a single sector is. He said it would be "inappropriate" to apply the same two-quarters definition to manufacturing.
Another widely used measure for the health of the manufacturing sector comes from the Institute for Supply Management. It surveys companies and produces a monthly Purchasing Managers Index, where any score above 50 shows growth. That number has been falling, but at 51.7 for June, it remains in positive territory.
Steve Blitz, chief economist at the investment advising firm TS Lombard points to that index as one sign that manufacturing is not in recession. And Blitz has others: Orders at U.S. factories went up $1 billion in June, he said.
"A recession is not evident in profits, still positive, and not evident in employment — flat to growing," Blitz said.
In June, the number of manufacturing workers went up 17,000, although it was basically flat for the three months before.
Federal Reserve chairman Jerome Powell told lawmakers that American manufacturing is being dragged down by weak demand around the world. On top of those global trends, participants in the Institute for Supply Management survey said the U.S.-China trade dispute and concerns about tariffs on Mexican goods had put a damper on activity.
Warren said the country is now in a manufacturing recession. Output has fallen for two quarters in a row, and some economists apply the recession label. But others do not; they say they’d need to see additional indicators of decline.
They point to other data that shows manufacturing has slowed but continues to grow. Importantly, the sector continues to hire more workers and orders for goods rose by $1 billion in June.
Warren has a point that manufacturing has weakened, but other information paints a more complicated picture. We rate this claim Half True.
Elizabeth Warren, The Coming Economic Crash — And How to Stop It, July 22, 2019
MarketWatch, U.S. manufacturing ‘is in recession,’ Fed’s data show, July 16, 2019
U.S. Federal Reserve Bank, Industrial Production and Capacity Utilization, July 16, 2019
Federal Reserve Bank St. Louis, Average Hourly Earnings of Production and Nonsupervisory Employees: Manufacturing, July 5, 2019
Federal Reserve Bank St. Louis, Average Hourly Earnings of Production and Nonsupervisory Employees: Total Private, July 5, 2019
Federal Reserve Bank St. Louis, Manufacturing employees, July 5, 2019
Federal Reserve Bank St. Louis, Manufacturers' New Orders, July 25, 2019
Institute for Supply Management, June 2019 Manufacturing, July 1, 2019
Federal Reserve Bank of Philadelphia, July 2019 Manufacturing Business Outlook Survey, July 2019
Federal Reserve Bank of Richmond, Survey of Manufacturing Activity, July 23, 2019
Federal Reserve Bank of Kansas City, June Manufacturing Survey, June 27, 2019
Reuters, Fed's Powell bolsters rate cut view on trade, global growth concerns, July 10, 2019
Federal Reserve Bank, Semiannual Monetary Policy Report to the Congress, July 10, 2019
CNBC, Elizabeth Warren’s recession scare appears long on fear, short on facts, July 22, 2019
Washington Post, U.S. manufacturing is in a ‘technical recession.’ How worried should we be?, July 25, 2019
Email exchange, Steve Blitz, chief economist, TS Lombard, July 25, 2019
Email exchange, Barry Bosworth, senior fellow, Economic Studies Program at the Brookings Institution, July 24, 2019
Interview, Chris Hayden, spokesman, Warren for President, July 25, 2019
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