US manufacturing faces a key test

By Steven Russolillo, for Wall Street Journal

Oct 03, 2016

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Data releases this week, including Friday’s monthly jobs report, should offer clues on whether the economy is up to the test. Up first is a key indicator of manufacturing activity on Monday. It is especially important because that is a clear weak spot.

Economists polled by The Wall Street Journal estimate the Institute for Supply Management’s manufacturing index ticked up to 49.7 in September from 49.4 a month earlier. That would mark the second successive month below the 50 level separating expansion from contraction.

The August reading was especially surprising because prior data had shown an improving manufacturing environment. Factory activity appeared to have stabilized from March through July. That followed a difficult end to last year that stretched into early 2016, thanks to the strong dollar and falling commodity prices.

To be sure, two months don’t necessarily make a trend. ISM’s historical data have shown several false alarms during this expansion, only for factory activity to regain course in the following months. Sustained downturns, however, are more problematic. Over the past three decades, there have been six instances when the ISM was at 50 or below for at least four months in a row. Job growth slowed in the year that followed each instance.

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