Is the Rising Star of U.S. Manufacturing Fading?
Once the darling of the 'recovery,' manufacturing faces challenges as the global economy slows
Manufacturing has been one of the rare bright spots in the so-called recovery of the U.S. economy, but weakening data for the sector is prompting fears that the rising star of "Made in America" might be fading.
Disappointing ISM numbers coupled with news that
The biggest drag on U.S. manufacturing came from shrinking inventories, which suggests companies have been paring down inventories due to anxiety about the future. "Typically when inventory turns negative like that, it means that there's lack of confidence in the short term," says
But for the optimists, lean inventories might not actually be a bad thing, especially since the pullback in inventory was accompanied by an uptick in new orders. "The combination of the two -- orders rising while inventories are falling -- could create the potential need for additional production in the future to fulfill those new orders," says
Another potential positive for U.S. manufacturing in the longer term is rising wages in
"We've seen in the last 10 years a lot of outsourcing to
Several American companies have already shifted some of their operations back to
The wildcard, of course, is
"With headlines like we've seen coming out of
The effects of uncertainty about the European sovereign debt crisis are already beginning to materialize. Export orders fell as the probability of the euro zone tipping into recession increases. Coupled with slowing growth in emerging markets, exports momentum has slowed, according to a recent IHS Global Insight report.
While the single biggest risk to economic expansion remains outside U.S. borders -- a potential financial crisis in the euro zone, slowing growth in emerging markets -- Smith doesn't predict any sharp movement in either direction for manufacturing. Much like every other sector in the U.S. economy, manufacturing will likely continue to post good but not great numbers, he says. "The economic environment is not one of rapid expansion that will bring down unemployment, but not one that looks like it's going to slip into recession."
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