Moody’s chief capital markets economist John Lonski argues there is no recession on the immediate horizon.
The weakest manufacturing number in a decade is nothing to worry about — at least for now.
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John Lonski, chief economist and managing director at Moody’s Capital Markets Group said the U.S. economy has previously experienced manufacturing slowdowns without sliding into a recession.
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“We’ve had two relatively weak readings on manufacturing, the months of August and September, yet if I go to 2015-2016, we had five consecutive readings that were comparable to what we saw yesterday, and yet there was no recession,” Lonski told “Varney & Co.” “My sense is that we are going to pull out of this slowdown by business sales, profits growth will return by enough to assure that hiring activity is great enough to prevent a rise by the unemployment rate.
“If we start to see a rising unemployment rate, that’s when we begin to become very concerned about a recession,” he added.
The non-farm payroll report due out Friday is expected to show the U.S. unemployment rate held at 3.7 percent in September, near its lowest level in 50 years. The report will come three days after ISM manufacturing data fell to its lowest level since June 2009 as global trade concerns weighed.
“Given the broader trend of the manufacturing sector, essentially slowing down since the middle of last year, this is essentially a continuation of that,” Torsten Slok, chief economist at Deutsche Bank Securities, told FOX Business. “And given the trade war broke out in the middle of last year, the fear we have is the trade war is still playing the biggest role in weighing on the manufacturing sector at the moment.”
Most troubling, according to Slok, is that new export orders, which are a leading indicator, fell to 41, well below the 50 number that indicates the sector is in a recession.
“The big picture is that manufacturing only makes up 10 percent of GDP and only makes up about 10 percent of employment,” he said.
“So you could say, ‘Well manufacturing is just a small share of the economy. What about the services sector, which is 90 percent of the economy? Shouldn’t we worry more about services?’ ” Slok said. “But the fear we have is that it’s unlikely that manufacturing can go into a relatively deep recession now without having any impact on the services sector.”
ISM services bounced back in August after printing at an almost three-year low in July. The September reading is due out Thursday morning.
Even if there is a slowdown in the economy, Slok thinks the U.S. will avoid a recession.
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“We still feel that the economy will continue to just skate above a recession, but it’s pretty clear that the risks to the downside and the recession risks have increased,” he said.
