While mid-cycle downturns have generally lasted eight months or less since 1945, recessions have lasted eleven months or more.
In the United States, industrial producers reported a decline in business activity for the thirteenth consecutive month, signaling a prolonged but relatively limited industrial recession that also affected fuel and electricity consumption.
According to the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI), the index remained at 46.7 as of November 2023, signaling a further decline in the business cycle.
Since November 2022, the index has remained below the 50-point threshold, which separates expansion from contraction, making this recession significantly prolonged.
The duration of this manufacturing recession bears more striking similarities to a late-cycle recession than to a mid-cycle downturn. While mid-cycle downturns have generally lasted eight months or less since 1945, recessions have lasted eleven months or more.
However, in terms of depth, the decline appears to be exceptionally slight, with only a small decrease in manufacturing production and associated energy consumption.
Diesel is the backbone of the industrial economy, with over three-quarters of the fuel used in manufacturing and freight transportation. Consumption of diesel and other fuel oils remained essentially stable in the three months from July to September 2023 compared to the same periods in 2022 and 2021.
If the volume of biodiesel and renewable diesel, which is growing rapidly but limited, is included, consumption increased by 2% compared to 2022 and by 4% compared to 2021.
The analysis suggests that despite the exceptionally prolonged duration of the manufacturing recession, its intensity may have been over-represented in the ISM monthly surveys.
The resilience of diesel-electric consumption suggests the manufacturing recession may be relatively shallow. This thesis is also supported by the fact that the new orders component of the index increased in November.
In contrast, the much larger and more labor-intensive service sector has barely experienced a downturn. After a brief and mild slowdown in the first two quarters, the ISM non-manufacturing index rose to 52.7 in November.
The strength of the services sector explains the persistence of inflation and has likely helped avoid a deeper recession in the manufacturing sector.
If manufacturing and transportation returned to growth in 2024, it would do so with already significantly reduced diesel inventories. Distillate inventories were 16 million barrels (13% or -1.15 standard deviations) below the ten-year seasonal average on November 24.
The relatively mild recession has prevented inventory rebuilding in 2022/23, and distillate inventories could become very low if manufacturing expands again in 2024.
In summary, the US economy is experiencing a prolonged but mild industrial recession, with the manufacturing sector appearing to be approaching a recovery phase. The strength of the services sector remains a key factor in supporting the overall economy and mitigating the potential negative impacts of the manufacturing sector.
Original article published on Money.it Italy 2023-12-18 07:00:00. Original title: Gli Stati Uniti sono in piena recessione manifatturiera
