Good and bad news for US manufacturing

Good and bad news for US manufacturing

Manufacturing continued its recovery after the disruption caused by the coronavirus pandemic, but slowly, and we are far from out of the woods yet.

US manufacturing received a much needed boost in July as activity accelerated to its highest level in eighteen months. Orders increased despite a much publicized resurgence in new COVID-19 infections, which has naturally raised fears about the sustainability of a budding economic recovery. The ISM said its index of national factory activity raced to a reading of 54.2 last month from 52.6 in June. That was the best performance since March 2019 and marked two straight months of expansion. A reading above 50 indicates growth in manufacturing, which accounts for 11% of the US economy.

The ISM said “manufacturing continued its recovery after the disruption caused by the coronavirus pandemic,” and added that “sentiment was generally optimistic” among manufacturers, continuing a trend from June.

It’s very likely that the upbeat survey released by the Institute for Supply Management (ISM) Monday overstates the health of the manufacturing sector, however. Heavy equipment maker Caterpillar Inc, whose fortunes are viewed as a bellwether for economic activity, reported lower second-quarter earnings last week and said it did not expect an improvement in sales this quarter.

Good and bad news

Coronavirus cases have skyrocketed in the South and West of the US in recent weeks and authorities are closing businesses again and pausing reopenings.

Data including weekly applications for unemployment benefits suggested the economic recovery that got underway in May with the reopening of businesses was faltering. A staggering 30.2 million Americans were receiving unemployment checks in early July. In the second quarter, GDP contracted at its sharpest pace in at least 73 years. Stocks were trading higher Monday as Microsoft’s pursuit of TikTok’s US operations and a clutch of upbeat quarterly earnings reports lifted investor sentiment. The dollar .DXY rose against a basket of currencies. US Treasury prices fell. Yet the outlook for manufacturing is far from certain. In addition to the lower quarterly earnings from Caterpillar last week, another industrial giant Boeing reported a bigger-than-expected quarterly loss and slashed production on its widebody programs.

Though employment figures in the sector continued to improve last month, they remained in contraction territory. The ISM’s manufacturing employment measure rose to a reading of 44.3 from 42.1 in June. Factory employment was already in decline because of the Trump administration’s trade war with China. Elsewhere, the Commerce Department reported Monday that construction spending dropped 0.7% in June after decreasing 1.7% in May. Spending on private construction projects slipped 0.7%.

The US economy is fighting back, but slowly, and we are far from out of the woods yet.


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Paul Imison
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