Economic Perspective: Is Manufacturing Still A Leading Indicator?

NC State College of Agriculture and Life Sciences professor Dr. Mike Walden working in a recording studio.

MARY WALDEN:

“Today’s program asks if manufacturing is still a leading indicator. Mike, all eyes are focused on the economy, and looking for signs of a potential recession. One troubling indicator is manufacturing. Production from our nation’s factories has been dropping for several months. In the past, such a trend was a good forecast of an impending recession. Is this still the case?”

MIKE WALDEN:

“No it’s not, and the reason is although manufacturing is still a very, very important component of our economy, the amount of manufacturing products is at a record high, when you put that in perspective of our economy , that is you look at manufacturing as a percent of the entire economy, it continues to slip. In fact, nationally manufacturing accounts for about 11 percent of total economic activity. That’s a full percentage under a decade ago, and is about half of what it was a generation ago.”

“And of course this is because the economy outside of manufacturing has been growing faster. Factories are being automated, et cetera. So economists are coming around to the point of view that, yes, we need to watch the manufacturing sector. If the manufacturing sector is contracting that’s obviously a concern, but it’s not as much of a concern as it was 10, 15, 20 years ago. And that means that we as economists are looking more at non-manufacturing activity, and the good news there is that economic activity outside of manufacturing in the so-called service sector is still rising, although it is rising at a slower pace.”

“So this is consistent with the notion that, no, we’re not going to see a recession in the near future. What we’re going to see is a slower paced economy. Still growing, but growing at a slower pace.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.

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