🚂Manufacturing (Short the Railroads?)🚂

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We were surprised to hear certain Representatives boast about US manufacturing growth during the impeachment hearings. We stopped in our tracks: “wait, what?” As we noted on Wednesday, the ISM Manufacturing numbers tell a different story — a contraction story.

But, to be fair, there are other surveys. The recent IHS Markit index painted a different picture. This Axios piece discusses the difference between the two surveys and is worth a quick read. The ISM survey includes fewer participants and “…uses five components, each weighted evenly at 20% — new orders, production, employment, supplier deliveries and inventories.” The IHS survey “…uses a weighted average that gives greater importance to new orders (30%), output (25%) and employment (20%), and lower weighting to suppliers’ delivery times (15%) and stocks of purchases (10%).” The bottom line is that if the former is correct, the US economy may be f*cked; if the latter is more accurate, the economy is expanding.

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Now, granted its a small data set but the current trucking situation (see Wednesday’s “🚛Dump Trucks🚛“) seems to reflect, at least in part, a slowdown in manufacturing (among other things, including the effect of tariffs and shipping). But what about the railroads?

In November, rail carloads declined 7.5% YOY, led primarily by coal (⬇️ 14.5%) and primary metal products (⬇️ 15.1%). Per Logistics Management:

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💥What to Make of the Credit Cycle. Part 30. (Long Signs of Coming Pain?)💥

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This week the market got qualitative and quantitative signals that were decidedly mixed.

On Tuesday, the ISM U.S. manufacturing purchasing managers’ index registered 47.8% for September, the lowest reading since June ‘09, and the second straight month of deceleration. A number below 50% suggests economic contraction. Economists all over Wall Street bemoaned tariffs for diminished activity, with one Deutsche Bank economist noting “the recession risk is real.” President Trump, of course, parried, saying that higher relative interest rates and the strong dollar are to blame.

Similarly, pundits dismissed this data’s importance, noting that the US economy is more services-based (70% of growth) than manufacturing-oriented. In addition, a competing survey from IHS Markit showed some positivity, reflecting that “though the sector remains in contraction, the index rose for the second straight month.” It concluded that the US, China and emerging markets are all simultaneously improving. Ah, qualitative reports. Insert grain of salt here. 😬

On Thursday, the ISM non-manufacturing index — a widely watched measurement of the services sector — came out and the numbers were 💩. Like weakest in 3 years 💩💩💩 .

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