If you're looking for signs of economic cooling, the activity level of purchasing managers in the manufacturing sector is now 15.90% lower than before the pandemic (as of August 31, 2023). The accompanying chart shows the significant decline and then subsequent resurgence in manufacturing activity post-pandemic. Such activity resurgence could be due to the urgent need to meet supply demands on the heels of mass-shutdowns and supply chain disorder. As life has been slowly adjusting to our "new normal", market supply has been faced with a continuously declining demand. With interest rates at the highest levels not seen since before the Great Financial Crisis (2008-09), this too could be an additional weighing factor on manufacturing activity, as the cost of borrowing has increased dramatically.
For many, referencing U.S. manufacturing activity as an economic indicator is a senseless one. The argument against using such data is that the manufacturing sector is much less relevant today than it was decades ago, as manufacturing's share of nominal GDP has dropped from 28.1% in 1953 to just 12% in 2015. However, we prefer to view manufacturing's share in real GDP terms. Doing so illustrates that the manufacturing sector contribution to GDP has been fairly consistent since the 1940's varying from 11.3% to 11.7% in 2015. [To learn more about why this is the case, please visit the St. Louis Fed].
