Drip…Drip…Drip
October 8th, 2019

Have you ever been anywhere where there is a faucet with a slow leak and every now and then you hear the drip, then a little while later another drip, then another?  At first you hardly notice it.  Then you hear it again and start to wonder where it is.  Then you find it and say “OK, I’ll deal with that later.”  But it keeps on dripping and now you’re starting to get irritated.  The economy is starting a slow drip.

In the last week several more causes for the drip have shown up.  The manufacturing gauge is the lowest it’s been since 2016.  It has now contracted for two straight months.  Weakness in the manufacturing sector spreads to other parts of the economy because companies start lay to lay off workers and stop buying as much from suppliers – an example of a ripple effect.  Small business hiring plans have dropped.  The ISM Non-Manufacturing Index (the services sector) has also fallen to its lowest level since 2016.  The U.S. services-employment index is the lowest in five years, and then hanging out there like a great dark cloud is the trade war.  The trade war is already having negative effects on the economy in many industries, but one of the less visible effects is the creation of continuing uncertainty about what’s going to happen.  Companies that might be thinking about making investments or expanding are holding back until they see how the trade war will resolve.

On the positive side, jobs continue to increase although growth has slowed considerably, and the unemployment ratio is the lowest in 50 years.  Mortgage rates are low and the housing market is strong.  And the American consumer is still spending – a very positive sign for the economy because consumer spending accounts for approximately 70% of the economy.

But that faucet is still dripping.

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