The last few pieces of data for Q3 more than suggest the US economy faltered in August/September. That trend would be alarming on its own had it occurred in a financial vacuum (as if ceteris paribus actually existed), but following along against the “dollar” is especially so. There was the initial, large decline in early 2015 that “unexpectedly” shocked economists and commentary off their 2014, GDP is 5% perch. That slump was initially met by derision and disembodiment as if it were yet another aberration (continuous anomalies tend to be something other than anomalous) to be discarded in serious analysis.
When the “slump” continued on past snowfall and port strikes, it was upgraded to “transitory.” That even appeared to be the reflection of the data as it, again, followed the “dollar” out of the first wave. The idea of “transitory”, then, meant expectations (and monetary promises) that there would be no second wave.
Obviously, starting around July 6, there was a second hitting everything from oil to China to even the here-to-fore unthinkable denting of stock market certainty. With economic data, especially spending and related manufacturing (since inventory is stuck in between them), now falling again as the “dollar”, all those prior benign interpretations risk undoing if not full repudiation. That is a big risk to markets in terms of prices caught wrong-footed about expectations (reordering assumptions to incorporate “transitory” being not that) but there is also great economic risk as at some point inventory imbalances demand correction.
The idea of “transitory” in that context is for manufacturers, wholesalers and retailers (to a more limited extent) to only make slight adjustments to production and trade levels to reflect inventory (and the “dollar”, by extension) but maintaining a positive outlook once the “temporary” problems abate and that 5% GDP comes roaring back as is
Originally appeared at: http://davidstockmanscontracorner.com/us-manufacturing-heading-toward-r-land/