‘The Sky is Falling’ on California Manufacturing, Worst since February 2009, Might Kick Regional Economy into Recession

‘The wheels have come off this quarter.’ ‘The sky is falling’ is the perfectly-on-the-mark technical expression by the good folks at the Institute of Applied Research, which publishes the Purchasing Managers’ Index for the Inland Empire – the only manufacturing PMI in California. The Inland Empire is the third-most populous region in California and a big manufacturing and warehousing hub that includes the city of San Bernardino which filed for Chapter 9 bankruptcy in 2012.
So the Inland Empire is a good gauge of manufacturing in the rest of California.
Back in 2009, during the depth of the Financial Crisis, the PMI report for February had produced a terrible score of 34.7 (below 50 = contraction). But in March, the index jumped to 45.2, still in a sharp contraction, but less catastrophic than in February. So the Institute of Applied Research endowed its March PMI report with the title, ‘Perhaps the Sky is not falling.’
Now we’re back – right between these two Financial-Crisis months. Only this time, it’s going in the wrong direction.
The IAR already issued a warning in its September report, with a hesitation. ‘We are not yet ready to say that ‘the sky is falling.”
At the time, the Inland Empire PMI had dropped to 44.1, below 50 for the second month in a row. But the report pointed out that ‘the sky is falling’ doesn’t apply until the index is below 50 for three months in a row; given the index’s volatility, it takes that long to establish a trend of contraction.

This post was published at Wolf Street on January 8, 2016.