Why the Manufacturing “Recession” Matters

A factory worker
A factory worker in Iowa. Reuters/Tim Aeppel

America’s manufacturers are not well.

On Wednesday, a key measure of industrial activity—the Institute of Supply Management’s Purchasing Manager’s Index—sank to its lowest level since June of 2009 (when the Great Recession was just winding down) and showed that the sector had been shrinking for two straight months. The bad news continued with Friday’s jobs report, which showed that manufacturers had shed 2,000 workers from their payrolls in September. After growing through most of Donald Trump’s presidency, total employment in manufacturing has effectively flatlined.

The chart showing the numbers steadily rising starting in Jan. 2017, but leveling off this year
That line sure is starting to look kinda flat. U.S. Bureau of Labor Statistics

It is not entirely clear that manufacturing is actually in a “recession” at this point, as some have argued. Journalists began bandying around the R-word this summer, after the Federal Reserve reported that industrial production had contracted for two straight quarters. Since then, the central bank’s stats have been more mixed. And while the ISM index shows the sector retreating, a rival barometer that some analysts prefer shows manufacturing is still growing, though just barely.

Still, whether or not we want to call it a “recession,” it is clear that the country’s factories are in a bit of a slump, which could have wider political and economic consequences.

After all, Donald Trump campaigned on a promise to bring American manufacturing back to life by getting tough on unfair competition from countries like Mexico and China. But as writers like Paul Krugman have been quick to point out this week, the president’s trade war has evidently backfired by driving up costs for U.S. manufacturers that use imported goods in production while creating a massive amount of economic uncertainty that’s hurt domestic business investment. The trade war has also contributed to a wider global slowdown that’s likely taking a bite out of U.S. factory exports.

Trump isn’t entirely at fault for the country’s industrial woes. Soft oil prices have probably played a role too, for instance, by leading energy companies to spend less money on drilling rigs and transport equipment. The world economy is also dragging for reasons that have nothing to do with Trump’s trade war (See: Brexit fears, China’s rickety and debt-burdened financial system). But assigning precise and scrupulously fair measures of blame is sort of beside the point politically. The bottom line is that manufacturing no longer seems to be thriving, and that fact can’t possibly help the president. Making matters worse, the sector has outright lost jobs this year in Wisconsin and Pennsylvania, two of the states that were key to Trump’s last election victory. As Bloomberg’s Shawn Donan has written, the situation is oddly reminiscent of 2015 and 2016, when an oil bust and surging dollar caused a “mini-recession” across the industrial belt that may have helped hand Trump his win over Hillary Clinton. But this time around, Democrats stand to benefit from the economic turbulence.

Trump will be in far graver trouble if a manufacturing “recession” helps tip the whole country into an actual recession. A lot of economists would tell you that the chances of that are low, since manufacturing makes up a small share of the economy compared to services and consumer spending. But the services sector now appears to be growing at its slowest pace in 3 years, as the Wall Street Journal reported this week, leading some to worry that the “manufacturing downturn is spreading across the economy.” And even if growth stays positive for the U.S. as a whole, smaller, regional recessions in manufacturing-heavy corners of the nation could be almost as disastrous for the president. At some point, our president may have to decide whether he cares about “winning” his trade war, or winning re-election.