October marked the slowest month for U.S. manufacturing growth in more than two years, with many people now wondering just how far the index will drop. What’s interesting, however, is that the U.S. dollar continues to outperform other global currencies. So even though the manufacturing industry is expanding at its slowest pace in years, the dollar remains strong.
The Institute for Supply Management published its manufacturing report earlier this month, citing that activity dropped to 50.1 in October from 50.2 in September. As long as the index is above 50, however, there’s growth. A 0.1 or 0.2 growth isn’t much, but it’s still trending in the right direction. Analysts note, however, that the ISM index presents the manufacturing industry as being the weakest since May 2013.
So, what’s causing the slow, almost stagnant growth of U.S. manufacturing? ISM’s manufacturing survey committee chairman Bradley Holcomb attributed the slowness to manufacturers’ “wait and see” approach. Because of recent instability in the manufacturing industry as well as the U.S. economy as a whole, manufacturers have been reluctant to expand their operations. Instead, they are choosing to play it safe by only manufacturing enough product to get by, adjusting their operations according to market response.
Last year, hundreds of U.S. retailers and businesses stockpiled an excess amount of goods during the winter and spring, at which point they were left with overstocked warehouses and shelves. Now, these same businesses are continuing to sell this surplus product, meaning they must postpone production orders for new products.
Another factor that’s likely playing a role in the stagnant growth of U.S. manufacturing is increased demand for overseas production. Although many companies have begun to “reshore” jobs from overseas back to the U.S., there’s still a strong demand for foreign-made products. This has at least partially contributed to a slowing down of the U.S. manufacturing industry.
The Wall Street Journal also reports that businesses are cautiously optimistic, which could affect the U.S. manufacturing index. “Businesses are reporting cautious optimism across several industries, tempered by concerns about the dollar’s strength. Some manufacturers, meanwhile, are seeing trouble tied to weak oil prices, though others are benefiting from low input prices,” said the ISM, according to the Wall Street Journal.No tags for this post.