A key economic indicator in the Inland Empire suddenly experienced a sharp decrease this past month, according to a new report by the Institute of Applied Research at Cal State San Bernardino.
“This month’s Inland Empire Purchasing Managers’ Index (PMI) registered 46.3, a significant drop from last month’s 54.5. This marks the first time in 29 months the index has dropped below the baseline 50 percent mark," said Dr. Barbara Sirotnik and Lori Aldana, authors of the Inland Empire Report on Business, a monthly survey of area businesses.
If the index remains below 50 percent for another two months, a new trend will have been established, indicating a contraction in the Inland Empire manufacturing sector, the authors said.
"And if the index drops even further (to 42.9), there will be indications of a weakening in the Inland Empire economy as well," the report said.
All major indices of the PMI dropped this month.
"The New Orders Index decreased from 55.2 last month to 43.3 and the Production Index dropped from 60.3 last month to 45.0 this month. The Commodity Price Index registered 48.3 this month, indicating that the cost of raw materials decreased somewhat from last month. The Employment Index also dropped below 50 percent for this month, decreasing to 41.7 from last month’s 53.4," the authors said.
Most of the survey respondents (64 percent) believe that the local economy will remain unchanged in the next few months. Only 18 percent predicted that the local economy will become stronger in the upcoming months, and 18 percent believe the local economy will become weaker over the next quarter, the report said.
It takes three months to establish a new trend in the PMI, so Sirotnik and Aldana are not ready to say that the “sky is falling” ...yet. They explained:
(1) This month’s low figures could be a summer slowdown in orders (which has occurred in June over nine of the last 10 years).
(2) The Inland Empire could be seeing an aberration/statistical anomaly which will correct itself next month.
(3) It is possible that the local area is seeing the first indication of a slowdown in the manufacturing sector (and perhaps the economy). It will take two more months to indicate definitively which of these explanations of the downturn is correct.
----- THE AUTHORS added, though, that this report is one more piece of bad economic news at the national, state, and local levels. For example:
• The U.S. Consumer Sentiment index (prepared by the University of Michigan) has declined and is weaker than expected, partially due to tariffs and “slowing gains in employment.”
• The California consumer confidence index is at its lowest level since July 2016, partially due to tariff tensions.
• The recent UCLA Anderson Forecast has increased the chance of a national recession from “near zero to 15 percent for the next year.”