U.S. economic growth will moderate in the first half of this year and manufacturing will likely play its part in that slowdown, according to a quarterly survey of manufacturing executives released on Thursday.
The Manufacturers Alliance/MAPI Survey on the Business Outlook showed a slowing in the first half. But strong balance sheets and liquidity will help businesses weather a profit slowdown during the year.
The survey index fell to 54 from 64 in the Sept. 2006 survey, the lowest since a reading of 52 was recorded in March 2002 and breaking a streak of 16 consecutive quarters above 60.
We've seen similar performance from other manufacturing indicators over the last few months. They have all shown a drop in current activity but higher future expectations. I am a bit skeptical of future expectations, largely because it's difficult to see someone being pessimistic about the six-month outlook unless the economy is in a recession.
In short, it looks like the current expectations for manufacturing are for a slower growth environment.
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"Strong balance sheets and liquidity" helping businesses "weather a profit slowdown" would translate into English as, "there is not a severe threat of across the board bankruptcies in the event of a recession".
And that is, I would argue, fundamentally good news. It bears remembers that a recession will be coming along sooner or later, and the less structural damage it does when it hits, the better the prospect for a strong recovery from the recession.
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