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US Manufacturing Revival: Smoke & Mirrors or Something Real?

By the numbers, the US manufacturing sector has been growing for several consecutive quarters. However, global economic and geopolitical concerns remain below the surface.

The manufacturing sector's economic activity expanded in August for the 15th consecutive month, and the overall economy grew for the 63rd consecutive month, according to the latest “Report On Business” from the Institute for Supply Management.

New orders, employment, and production grew from July to August, and inventory increased as supplier deliveries slowed. The Purchasing Managers Index (PMI) jumped to 59%, up 1.9% points from July's 57.1%. The bounce in the PMI signals continued expansion in manufacturing and reflects the highest reading since March 2011 when the index registered 59.1%, according to ISM.

Additionally, capacity utilization is nearing pre-recessionary levels — a positive sign that the manufacturing industry is coming out of the downturn that began in December 2007, Chad Moutray, chief economist for National Association of Manufacturers, wrote recently in IndustryWeek.

“Overall business is improving. Order backlog is increasing. Quotes are increasing. Much more positive outlook in our sector,” one electrical equipment purchasing manager said during ISM’s monthly, nationwide survey of purchasing and supply executives, cited in the PMI report's press release.

Despite the consistent growth trend, it's unclear how much of a revival US manufacturing is really seeing, particularly when viewed through a global lens.

As The Wall Street Journal reported, heaps of cheap shale gas seemed to promise a boom in US manufacturing might. However, while US manufacturing has picked up steam, and the sector is putting the recessionary blues behind it, European and Asian countries still maintain strong export strategies, thus keeping American products in check in the world market.

US factories are losing ground to Asian and European competitors, the newspaper pointed out in an article published at the end of August. The US trade deficit and commerce related to steel, trucks, car parts, industrial machinery, and furniture are some of the reasons, the newspaper said. The WSJ said that the US deficit on trade in goods grew during the first half of the year to $371.59 billion from $354.64 billion a year earlier. Imports rose 3.3%, while exports increased 2.6%.

But, that doesn't mean Europe isn't having its share of problems, too.

Although Germany's manufacturing sector expanded in August, it did so at its slowest rate in 11 months as new orders and output growth weakened, Reuters UK reported early in September. Generally, activity in the euro zone's manufacturing sector slowed, and Italy joined France in contraction, according to a WSJ story.

By all counts, the latest PMI reports coming out of Europe show that the region's economy remains stagnant, and continued cuts in manufacturing jobs could put pressure on the Europe Central Bank to roll out additional stimulus measures aimed at boosting demand and inflation, according the WSJ.

So, what does this signal for the rest of the year, as we start moving into the holiday build cycle?

According to various reports, executives are still concerned about how a number of factors will play out in the coming months. They cite access to skilled labor, health insurance costs, geo-political instability, and ongoing economic recovery as primary worries.

I suppose we'll see in a few months' time how this shapes up. Was the US manufacturing growth a boom, or do we still have a ways to go? How do you see the fourth quarter playing out?

5 comments on “US Manufacturing Revival: Smoke & Mirrors or Something Real?

  1. apek
    October 14, 2014

    In view of Global economy, It has been completely messed up with the central banks around the world printing lot of money to stimulate the economy. The revival of manufacturing in US or for that matter any country which had in past offshored its manufacturing jobs will not happen unless FREE trade is replaced by FAIR trade. This would also solve the problems of Trade deficits. Regarding geo-political instability, It has been created by the years of Globalization based on FREE trade. The revival of global economy needs a strong local economy which boosts the consumer purchasing power and hence it boosts the economic demand. However, The psedo-Keynesian policies followed by central banks are essentially SUPPLY side economics which has repeated failed due to bursting of Economic bubbles. We are in another Bubble right now and this burst would be horrendous. We can move to a stable local and global growth by reforming the monetary policies of central banks. I believe they will not change but the ones who are most affected by such policies ( YOU and Me ) need to do something to change to avoid an economic chaos.

  2. Daniel
    October 15, 2014

    “As The Wall Street Journal reported, heaps of cheap shale gas seemed to promise a boom in US manufacturing might. However, while US manufacturing has picked up steam, and the sector is putting the recessionary blues behind it, European and Asian countries still maintain strong export strategies, thus keeping American products in check in the world market. US factories are losing ground to Asian and European competitors”

    Jennifer, I think the first point and last points are contradictory. Even though US have cheap shale gas, which can promote industries; but still they are losing ground to Asian and European competitors. Why it happens like? Is it something due to poor regulation or something else?

  3. harpat949
    October 22, 2014

    Cheap shale gas may not help US manufacturing if our competitors have access to the cheap gas. If gas prices are the same for both, the advantage would be nullified. In fact there could be a negative impact because shipping costs which are energy related, would reduce for the competitors. Most likely, US will sell cheap gas to others.

  4. Hailey Lynne McKeefry
    October 22, 2014

    @harpat949, i'm glad you chimed in. If it's a level playing field, certainly it would be less helpful… you may be right about US selling to others. I hadn't thought of it.

  5. Daniel
    October 24, 2014

    “Cheap shale gas may not help US manufacturing if our competitors have access to the cheap gas. If gas prices are the same for both, the advantage would be nullified. In fact there could be a negative impact because shipping costs which are energy related, would reduce for the competitors. Most likely, US will sell cheap gas to others.”

    Harpat, such overheads also has to be accounted.

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