A Financial Wake-Up Call for Manufacturers

Recent turbulence in the stock market is a wake-up call to manufacturers, and to all businesses. The measurable rise in the yield on the 10-year Treasury note, now at the highest level in four years, has arguably been the primary catalyst for the equity market rout. This rise spurred to some extent by credible hints that long-dormant inflation might be on the cusp of increasing, has been a signal that financial conditions will eventually, and perhaps quickly, tighten to more normal levels.

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The Slow March Forward

In spite of the tumult of a reawakening global economy whose U.S. benefits were constrained by escalating political uncertainty, two destructive hurricanes, and an alarming confrontation with North Korea, U.S. manufacturing managed a rather bland but steady growth performance during 2017. The Federal Reserve reported that after two difficult years of essentially zero output gains, growth in the factory sector logged 1.3% during 2017. 

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Celebration and Confusion at the Fed

For all the criticism and threats to its independence that the Federal Reserve has endured in recent years, this is one Washington institution that has earned the right to celebrate. History will show that the U.S. central bank played the largest role in the effort to rescue the U.S. and indeed the global economy from a near disaster.  The Great Depression of the early 1930s was a life and society threatening event, and the U.S. almost repeated history. Were it not for the quick actions of the Fed and a few other central banks in 2008, the deepest downturn since the 1930s would have resulted not in a peak unemployment rate of 10%, but something much higher, possibly requiring another decade for a full recovery. Instead, ten years after the near financial and economic collapse of late 2008 and early 2009, job growth remains strong, the unemployment rate is hovering at a 16-year low, economic expansion is now the third longest in history, and there is little sign of recession on the horizon. Further, the global economy is now showing measurable improvement. That’s a lot to be proud of.

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