A key bellwether of America's manufacturing activity has been in freefall for over a year, eclipsing the decline during the 2008 financial crisis.

Last month, ISM’s manufacturing purchasing managers’ index (PMI) came in at 49.1—marking the 15th consecutive month of sub-50 readings. On the PMI scale, anything below 50 generally suggests the sector is shrinking.

This marks the worst PMI streak on record, far exceeding the 11 straight months of contraction during the 2008-2009 financial crisis.

According to economist David Rosenberg, “at no time since 1950 did this happen without being in, or heading into, an official recession.”

Manufacturing accounts for about 11% of U.S. GDP, but its overall contribution is closer to 24% when factoring in direct and indirect effects, according to the National Institute of Standards and Technology.

Of course, a shrinking manufacturing sector only tells part of the story of the overall economy.

In an op-ed for the Financial Post last September, Rosenberg said the manufacturing PMI needs to be weighed against other indicators, including rising credit delinquency rates, real wage growth, and trends in the business cycle.

From a nominal GDP perspective—the economic output not adjusted for inflation—the U.S. is at a nearly identical point to the late 1990s, 'when the U.S. economy was knee-deep in recession,' as he wrote.

That begs the question: why does the U.S. economy look like it’s stronger than ever? Economists say you can thank the consumer for that.

Strong consumer picks up the slack

Since the end of Covid's stimulus, cash-flush consumers have been the main driver of America's economic growth. But that growth came at the expense of savings.

From the beginning of 2021 to last December, the personal savings rate plunged from 19.3% to 3.7%.

“I never thought we would close the year with a depleted 4% personal savings rate—half the pre-Covid-19 norm,” Rosenberg wrote in a Jan. 30 post, referring to the sharp decline in personal savings rates.

The cash that Americans stowed away during the pandemic won't come to rescue either because most of it is gone, according to researchers at the San Francisco Fed.

“Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June [2023],” Fed researchers Hamza Abdelrahman and Luiz Oliveria wrote.

While the Fed admits it’s hard to pinpoint exactly when excess savings would be depleted, it probably happened sometime in the latter half of 2023, they said.

But it gets worse.

Economic growth financed by consumer debt

As it turns out, many Americans are now keeping the economy alive by spending well above their means.

According to Fed data, U.S. credit card balances increased by 4.7% in the third quarter of 2023, reaching $1.08 trillion.

A 2023 survey by Clever found that 48% of Americans are turning to credit cards to pay for essential living expenses like food and rent. As the bills add up, one in four (28%) goes deeper into debt each month.

Meanwhile, a report by the Consumer Financial Protection Bureau (CFPB) found that credit card delinquencies have been on the rise since the federal government rolled back its Covid relief payments.

“When real interest rates rise or the prices of goods rise faster than wages, consumers will face difficulty repaying existing balances without either cutting expenses or receiving a windfall,” the report said.

Economists say this is a bad sign for consumer spending and, potentially, the economy.

“I never expected outstanding credit card balances to mushroom nearly 10% last year—a year in which consumer credit card delinquency rates hooked up sharply to 2012 levels,” he explained.

America’s spending habits are not sustainable, according to Jack Kleinhenz, chief economist at the National Retail Federation.

“A year ago, many commentators were skeptical and calling for a recession, but the recession never came. With each passing month, consumers kept spending despite inflation and higher borrowing costs,” he told CNBC.

“We are still largely a paycheck-to-paycheck nation,” according to Mark Hamrick, senior economic analyst at Bankrate.