Yesterday the ISM Manufacturing Report on Business came out and it showed a large decline in the US manufacturing sector. The headline PMI number of 49.5% means that the US manufacturing sector is below the 50% threshold that separates expansion and contraction. The best interpretation for why the manufacturing sector has taken a tumble is the fiscal cliff.
If one looks at the ISM sub-indices a more nuanced picture emerges. Production has actually increased from 52.4 to 53.7. So the manufacturing sector will add even more to GDP in Q4 2012 based on November's production than October's. And this has nothing to do with inventory building as the inventory sub-index moved to contraction from unchanged. The reason that the PMI has faltered has everything to do with forward-looking subindices...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.