Manufacturing a false sense of economic optimism

Industrial activity declined for the 14th straight month -- but the rate of plummet slowed by a fraction. Break out the champagne!

Published April 1, 2009 5:08PM (EDT)

Mid-morning Wednesday, the Wall Street Journal explained a sharp upward movement in stock prices as follows:

But stocks' early losses reversed after the Institute for Supply Management said its manufacturing index was 36.3 for March, a weak reading that still indicates a deep contraction in the manufacturing sector, but an improvement from February.

If the ISM report influenced investor behavior, then traders truly are so desperate for anything that can be interpreted as positive news, no matter how specious, that they have lost all sense of perspective. They blithely ignore an extremely bad jobs report from the payroll services company ADP, indicating that U.S. companies lost another 742,000 jobs in March, and instead hang their hopes on an economic indicator that states without equivocation that manufacturing activity continues to shrink.

Sure, the 36.3 reading is a slight improvement over the 35.8 reading for February, but anything under 50 indicates that manufacturing activity is declining, and this is the 14th straight month in which the index has been below that mark. It's the third straight month in which the index has been marooned in the mid-30s. The best one can say, according to the Institute for Supply Management's own press release, is that "the rapid decline in manufacturing appears to have moderated somewhat." Not a single one of the 18 different industry groups surveyed reported growth in March. Not one!

The only real good news: The "New Orders Index" rose above 40 percent for the first time in seven months, and five of the 18 industry groups reported that they expected they would see a benefit from stimulus spending.

Meanwhile, Forbes' Carl Gutierrez laid it out straight:

Wednesday's broad mix of housing, labor and factory reports gave Wall Street little hope that the recession is nearing an end.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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