Growth in the manufacturing sector picked up in August, a sign the economy is resisting the global economic chill although a rise in new jobless claims last week pointed to a still-sluggish labor market.
Reuter’s repored that financial information firm Markit said on Thursday (Aug. 23) its “flash” index for U.S. manufacturing edged up a half point to 51.9 in August. A reading above 50 indicates expansion.
That was still some of the weakest growth in the factory sector in the last three years, reinforcing the view that U.S. economic growth will pick up in the second half of the year but remain lackluster.
“The U.S. economy is slowly turning the corner,” said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York.
The reading, based on a survey of purchasing managers, beat expectations and rose despite sluggish overseas demand for American goods.
Still, the modest improvement was not enough to dissuade investors’ bets on more monetary stimulus from the Federal Reserve. U.S. government debt prices rose, although stocks slumped on Wall Street amid signs of further weakness in the global economy.
Many economists think the Fed could unveil a new bond buying program to prop up economic growth as soon as its next meeting Sept. 12-13, although an improvement in hiring this month could make that less likely.
The data on initial jobless claims suggested employers remain cautious about adding staff.
The Labor Department said initial claims for state unemployment benefits rose 4,000 last week to a seasonally adjusted 372,000.
“Jobless claims continue to indicate … a sluggish labor market,” said Peter Cardillo, an economist at Rockwell Global Capital in New York. “The numbers also strengthen the hand of the Fed to aid the economy with more stimulus.”
However, Cardillo and other economists said the slow pace of healing in the labor market doesn’t necessarily point to immediate action by the Fed.
U.S. manufacturing shrank in June for the first time in nearly three years, a troubling sign as evidence builds that economic growth is slowing.
The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of manufacturing activity fell to 49.7. That’s down from 53.5 in May and the lowest reading since July 2009, after the recession officially ended. Readings below 50 indicate contraction. Click here to read the industry report.
Production fell to a three-year low and a measure of new orders plummeted by the most in more than a decade, suggesting the weakness will likely persist in the coming months.
Stocks, which had largely been flat when the market opened, fell immediately after the report was released at 10 a.m. The Dow Jones industrial average dropped more than 70 points in morning trading, The Associated Press reported.
“This is not good. Not good at all,” said Dan Greenhaus, chief economic strategist at BTIG, an institutional brokerage. While the report “does not mean recession for the broader economy, it is still a terribly weak number.”
Manufacturing, which has helped drive growth since the Great Recession ended, has begun to falter as the U.S. job market has fizzled and global growth has weakened.
Americans have pulled back on spending, which has lowered demand for factory-made goods. Europe’s economy is likely in recession, which has hurt U.S. exports. And China’s manufacturing sector grew in June at its slowest pace in seven months, according to a survey released Sunday by the state-affiliated China Federation of Logistics and Purchasing
The sharp drop in U.S. factory activity overshadowed more positive news on the housing market. U.S. construction spending rose for the second straight month, although spending remains well below healthy levels.
Manufacturing is likely to stay weak for the next few months. The ISM’s gauge of new orders, a good measure of future activity, plunged from 60.1 to 47.8. That’s the first time it has fallen below 50 since April 2009, when the economy was still in recession.
Fewer new orders reflect growing concerns of businesses. Many are worried about growth slowing from the anemic 1.9% annual pace in the January-March quarter. Europe’s financial crisis and the prospect that U.S. lawmakers won’t extend a package of tax cuts at the end of the year have added to the uncertain outlook.
The U.S. economy expanded at a moderate pace between early April and late May, though turmoil in Europe and political uncertainty in the U.S. worried some employers, the Federal Reserve said in a report released Wednesday (June 6).
As reported by The Wall Street Journal, the economy expanded at a moderate or modest pace in the central bank’s 12 districts, the Fed said in its latest beige-book report, based on anecdotes collected from business contacts and economists spread across the nation.
Hiring was steady and manufacturing continued to expand in most districts, with particular strength in auto and steel manufacturing, the Fed said in the report.
“Economic outlooks remain positive, but contacts were slightly more guarded in their optimism,” the beige book noted. For instance, while manufacturers experienced gains in production and new orders in most regions, “contacts in a number of districts were concerned that a slowdown in Europe and domestic political uncertainty may affect future business conditions.”
The report noted steady growth or improvements in many corners of the economy, including consumer spending, travel and tourism, agricultural conditions, loan demand and credit conditions, and residential and commercial real estate. Over all, wage pressures and price inflation were “modest,” and overall cost pressures eased as the price of energy declined, the Fed noted.
To view the entire article in The Wall Street Journal click here.
U.S. factories are closing. American manufacturing jobs are reappearing overseas. China’s industrial might is growing each year.
And it might seem as if the United States doesn’t make world-class goods as well as some other nations, The Associated Press reported.
“There’s no reason Europe or China should have the fastest trains, or the new factories that manufacture clean energy products,” President Barack Obama said in his State of the Union policy address last week.
Yet America remains by far the No. 1 manufacturing country. It out-produces No. 2 China by more than 40%. U.S. manufacturers cranked out nearly $1.7 trillion in goods in 2009, according to the United Nations.
The story of American factories essentially boils down to this: They’ve managed to make more goods with fewer workers.
The United States has lost nearly 8 million factory jobs since manufacturing employment peaked at 19.6 million in mid-1979. U.S. manufacturers have placed near the top of world rankings in productivity gains over the past three decades.
That higher productivity has meant a leaner manufacturing force that’s capitalized on efficiency.
“You can add more capability, but it doesn’t mean you necessarily have to hire hundreds of people,” says James Vitak, a spokesman for specialty chemical maker Ashland Inc.
The industry’s fortunes are brightening enough that U.S. factories are finally adding jobs after years of shrinking their payrolls. Not a lot. But even a slight increase shows manufacturers are growing more confident. They added 136,000 workers last year — the first net increase since 1997.
What’s changed is that U.S. manufacturers have abandoned products with thin profit margins, like consumer electronics, toys and shoes. They’ve ceded that sector to China, Indonesia and other emerging nations with low labor costs.
Instead, American factories have seized upon complex and expensive goods requiring specialized labor: industrial lathes, computer chips, fighter jets, health care products.
Consider Greatbatch Inc., which makes orthopedics and other medical goods. The company is expanding its manufacturing operations near Fort Wayne, Ind. Greatbatch wanted to take advantage of a specialized work force in northeastern Indiana, a hub of medical research and manufacturing.
“When you’re talking about medical devices, failure is not an option,” CEO Thomas Hook says. “It’s a zero-mistake environment. These products are customized and high-tech. They go into patients to keep them alive.”
Hook says the United States offers advantages over poorer, low-wage countries: reliable supplies of electricity and water, decent roads. And some localities support businesses by providing infrastructure and vocational training for potential hires.
Centerline Machining & Grinding in Hobart, Wis., which makes custom parts for manufacturers in the paper industry, plans to add to its staff of 26. But it’s struggling to find the skilled tradesmen it needs for jobs paying $18 to $25 an hour.
CEO Sara Dietzen laments that local vocational schools cut back training courses in recent years, having concluded that the future for manufacturing was dim. Not from her view it isn’t. For her company, output is all about speed.
“Our average customer wants a turnaround in less than three weeks,” Dietzen says. “You’re not going to get that in China.”
Still, economist Cliff Waldman of the industry research group Manufacturers Alliance/MAPI doubts that U.S. factories will continue to expand their payrolls in the long run. Manufacturing, he says, is “not a job creator for the U.S., basically.”
Global competition will always force factory managers to try to replace expensive workers with machines or with low-wage labor overseas, Waldman says.
Mark Perry, a visiting scholar at the conservative American Enterprise Institute, likens the loss of manufacturing jobs to the exodus of workers from farms between the 19th and 20th centuries. If that migration hadn’t happened, Perry says, “we’d still have millions of people working in agriculture. Now, we can employ fewer people in factories.”
But the transition can be painful, he concedes.
The U.S. remains No. 1 in global manufacturing, accounting for 18% of global manufacturing output in 2008. But China is catching up. Its share of manufacturing output jumped from about 6% 1998 to 15% in 2008.
Critics have a ready explanation for that: unfair competition.
Robert Scott of the left-leaning Economic Policy Institute says China is cheating in world markets — keeping its currency artificially low to make Chinese products less expensive overseas and unfairly subsidizing its exporters.
Scott and other critics want to see the Obama administration support U.S. manufacturers by pressuring Beijing to drop the subsidies and let its currency rise freely. A higher-valued Chinese currency would make U.S. exports cheaper for Chinese consumers.
Centerline CEO Dietzen says she isn’t fazed by Chinese manufacturing. Some of her customers have placed orders with Chinese companies, she says, only to return, frustrated, to her company.
Chinese factories want mainly big orders. And they demand lots of time to fill them.
Dietzen says her clients are “finding when they get their parts back from China, they’re not always what they want. So we end up doing the work anyway.”
“A common misperception,” Greatbatch CEO Hook says, is that the United States doesn’t make anything anymore.
The reality is rather different.
“We need a highly skilled work force,” Hook says. “So it’s very advantageous to be in a country like the United States where people are educated and ready to be hired.”