There is nothing Wall Street likes better than the ability to measure something. Economists talk in concepts, on Wall Street they like measurable numbers. Either the company is making money or it is not. In the first Tuesday of every month, the Institute for Supply Management (ISM) releases its purchasing managers index (PMI). In an article by Stephen Culp of Reuters noted the manufacturing sector accounts for 12% of the economy. Service and retailing account for most of the rest, however the manufacturing index helps drive the other sectors. In August the PMI was down to 47.8 from an an expect number of 50.1.
This was the second time the index was down which means exporters are closer to recession than booming. The biggest reason for the downturn is President Trump’s tariffs on Chinese imports. The problem is compounded by the increase in the dollar which means for the next few months companies will be more inclined to wait or scale back until they can read the tea leaves of the consumer.
During the first quarter of 2018, when tariffs came on Chinese goods, the negative currency impact was $40 million a year. That number has balloned to $23.4 billion.
The companies most affected included GE which recieves 65% of its income from outside the US; Computer Chip makers such as Micron Technology; Qualcomm’s overseas customers contributed 97.4% and Nike receives 62.5% of their revenues offshore.
Manufacturing is in the early stages of a recession.
Linking to dividend paying stocks, the economy similar to all industries has some bell weather or canary in the mine stocks which gives you indications of how the overall economy is doing. Hopefully, politicians know which indicators they are and pay attention as they go up and down and take appropriate actions. While investors do segment rotation or pay particular attention to those companies which are most affected. In every downturn, there are opportunities to either accumulate a good stock at a low price or move to growing sectors.
There are more questions than answers, till the next time – to raising questions.