Never before has global manufacturing activity loitered so long in what amounts to a neutral gear.

That was one interesting takeaway from a new Goldman note which described the macro backdrop as “stuck between ‘Goldilocks’ and ‘Reflation Flirtation.'”

The figure below tallies consecutive months of global manufacturing PMI prints between 48 and 50.

Long story short, the current streak has no precedent. In three quarters of a century, the closest thing was an eight-month span, less than half the duration of the stretch we’re in now.

Recall that US manufacturing, as measured by ISM, is mired in a 16-month “recession,” where that just means a sub-50 headline. German manufacturing’s beset.

But as Goldman’s Cecilia Mariotti noted, the ISM trough this cycle was actually pretty high versus the long-term average. The local low was 46.6 in November, and last year’s other low points were right around that level. She also emphasized that it’s not unusual for ISM to trough well above the six-decade mean.

As the table above shows, ISM bottomed above 42 about half the time, and in every such instance, a recession was averted.

I’m not sure there’s a lot to be gleaned from the wage growth and CPI averages given the “gravity” of the late-70s/early-80s data points. The same can probably be said for the UNR average given the distortion from the pandemic high mark.

That said, there’s probably some signal in the noise vis-à-vis the Fed funds forward (although those averages are obviously influenced by the same outliers, given that policy’s a function of the macro). As Mariotti wrote, of instances when ISM troughed above 42, “the macro backdrop did not typically allow for a cutting cycle, which in turn meant flat to higher rates.”

That nods to one side of the two-way risk inherent in manufacturing activity that’s teetering indecisively between expansion and contraction. The figure below nods to the other side.

The chart’s pretty self-explanatory, but just in case: It shows the trajectory of US equities around historical low points for factory activity. The red line is the current trajectory.

Now, look back up at the table (i.e., “Exhibit 4” from Goldman). ISM peaks tend to be higher after recessionary troughs. The same general dynamic’s observable in equities: The rebound for stocks tends to be more pronounced off of lower trough PMIs. The rally since late-October is stronger even than the average recovery from recessionary PMI levels. That’s “in large part” attributable to the Magnificent 7, Mariotti remarked, but it’s nevertheless worth noting.

To reiterate: Stocks are rallying as if we’re coming out of a deep manufacturing downturn, when in fact PMIs have merely oscillated between expansion and contraction (and for a record number of consecutive months). The difference between the red line in the chart (the current rally) and the grey line (which represents the typical trajectory for equities during so-called “false troughs” in factory activity), suggests a long way down in the event of a serious loss of manufacturing momentum.

So, which is it? No recession and the accompanying risk of multiple compression from “high for longer” rates, or a “false trough” for activity and a nauseating catch-down for stocks that central banks may or may not be able to expeditiously offset with rate cuts? Spoiler alert: Nobody knows.

If you ask Mariotti, a “meander” scenario (if you will) is just as likely as any other. “With continued inflation normalization and central banks starting their cutting cycles, growth should eventually become a more important driver of risk appetite [but] over the near-term, markets are likely to continue to oscillate between ‘Goldilocks’ and ‘Reflation Flirtation,'” she wrote, adding that although Goldman does “expect some rates relief,” it’d be “unusual to have rates resetting materially lower” in the event manufacturing activity rebounds sustainably.