Is that the other shoe dropping?

Six months into 2013, industrial laser market analysts got the anticipated and not unexpected, negative news on the manufacturing economy.

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Six months into 2013, industrial laser market analysts got the anticipated and not unexpected, negative news on the manufacturing economy. It came via two purchasing manager’s reports, US and China, for the month of May. For the US the index of manufacturing activity dropped below 50, the magic number separating growth from contraction, to 49. And in China the index fell to 49.2.

Now before you line up at the open window along with other investors, let’s put this into context. It’s not the end of the recovery, or the end of an era or the end of the world. Basically it’s a correction, long overdue in the thinking of some analysts. Rational-thinking "experts" have been expecting this for several months. Their simple reasoning was that as the global markets slowed down, it was only a matter of time before US exports also slowed. It did and they did. And China didn't seem strong enough to take up the slack in the first three months of the year.

The drop was not precipitous. In the US, it went to a four-year low and the first time under 50 since November. In China, the last time below 50 was in October. Thus, experts are calling the drops "marginal". Don’t you just love that word? But read the bold headlines from Manufacturing.Net – "Gauge of U.S.A. Manufacturing Sinks" and "Survey: China Manufacturing Shran"k in May. By the way, do you see the link here?

At the mid-year, in my annual exercise of adjusting the January projections, I have decided not to make a change to the 2013 outlook. I was critiqued as being too cautious in my forecast then, but as I stated, global manufacturing was forecasting a low to flat year, and low and behold, that looks like what happened. It just took a little longer in the US, and the real numbers caught up to the Chinese in the first quarter.

And as I forecast, both economies are expected to perk up in the third quarter and to build a backlog in the fourth quarter. We’ll probably not finish with a bang, but it will be enough to lead to a good first quarter of 2104.


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