Will the U.S. Manufacturing Recession Cause a Stock Market Crash?

  • The U.S. manufacturing recession is creating jitters among some investors, forcing them to question whether the downtrend will impact stocks and the broader economy.
  • Manufacturing isn’t as important to the U.S. economy as it once was so it’s unlikely to spill over into other sectors.
  • Betting against stocks when the Federal Reserve is printing money is not a good idea.

The U.S. manufacturing sector is in a recession and numbers for the month of October came in worse than expected. As per Federal Reserve, output at American factories fell 0.8% in October, missing expectations of a 0.4% drop by a wide margin. This was the worst monthly drop since May 2018 and marked the fourth consecutive month of decline.

Consistent contraction in the manufacturing sector has investors worried about a widespread recession that will send stocks lower. However, there are two good reasons to believe why recession fears may be overblown and betting against stocks may not be a good move right now.

Manufacturing Recession Won’t Spill Over Into Other Sectors

Even before the October numbers came in, manufacturing accounted for the smallest share of the U.S. GDP in over seven decades. The sector was once a powerhouse of the U.S. economy, accounting for roughly a quarter of GDP in the 1960s. Its importance has been declining consistently and it makes up just 11% of GDP as per the latest data.

Manufacturing as a per cent of GDP
Manufacturing as a per cent of U.S. GDP has been declining consistently. | 
Source: Medium.com

Despite the recession in manufacturing, U.S. GDP growth came in at 2.1% in the third quarter, according to the latest revised estimates. That was higher than expected. The U.S. economy is expected to continue growing at a moderate rate.

The strength of U.S. economy in the face of declining industrial output highlights the diminishing importance of the manufacturing sector. The chances of the manufacturing recession spilling over into other segments of the economy and causing a widespread recession are quite…

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