Manufacturing in the U.S. unexpectedly shrank in May at the fastest pace in four years, showing slowdowns in business and government spending are holding back the world’s largest economy.
The Institute for Supply Management’s factory index fell to 49, the lowest reading since June 2009, from the prior month’s 50.7, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between growth and contraction. The median forecast of 81 economists surveyed by Bloomberg was 51.
Glenn Reynolds initiated the “Unexpectedly!” theme several years ago; since then there have been countless news stories about the U.S. economy’s “unexpected” failures to perform. Observers generally offer micro-explanations based on trends of the moment. Currently, among other things, the minute sequester cuts are blamed for some portion of the drop in manufacturing.
But this narrow focus obscures the broader point: the American economy has performed terribly, by any objective standard, over the last few years. The recovery of 2009 to the present is the weakest–by far–of any postwar recovery. Unemployment and poverty are sky-high because economic growth is anemic. But why is growth so sluggish? After all, there are powerful forces that should be driving the economy forward, foremost among them the North American energy boom. Take the current data on manufacturing: it has been widely reported that manufacturing is returning to the U.S. because cheap energy here, the result of the shale oil and gas revolution, balances out lower labor costs in Asia. But if this is the case–and it is–then why is domestic manufacturing declining?
America’s slow-to-nonexistent economic growth, of which today’s manufacturing data are one of many symptoms, is the result of bad government policies: out-of-control regulations, excessive and inefficient government spending, rising tax rates and the impending disaster of Obamacare, to name the most obvious ones. Until observers are willing to acknowledge the extent to which poor government drags down the economy, they will continue to be surprised by unexpected bad news.