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Yellow Flag From Manufacturing

manufacturing

Amid other signs pointing to economic strength, the manufacturing sector is showing some weakness, according to a monthly report released today.

The ISM Report on Business PMI index, which polls manufacturers about various aspects of their businesses, dropped below the threshold of 50 for the first time in 36 months. It fell to 48.6 for November, down from 50.1 in October.

The sector has been drifting downward since June. Manufacturing has long been a shrinking piece of the economy, and there are some reasonable explanations for what we’re seeing here, said Bob Hughes, senior research fellow at the American Institute for Economic Research.

Weak commodity and energy prices mean less production, so manufacturing of capital equipment for the energy and commodities sectors would naturally be slower, Hughes said. And a strong dollar and slow global growth are hurting exports, including high-value manufactured goods, like farm and construction equipment, as well as airplanes, Hughes said.

Nevertheless, “It is a bit of a warning flag to see the manufacturing sector weaken,” Hughes said.

Looking within the report, the new orders index fell to 48.9, from 52.9 the prior month. That’s a fairly significant four-point drop, Hughes noted. Another sizable decline was the production index, which fell to 49.2, from 52.9. The employment index, however, rose to 51.3, from 47.6.

ISM will report on the services sector, which has been showing increasing strength in the last few months, on Thursday.

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One Comment Post a comment
  1. As the dollar strengthens, these trends in manufacturing will continue. In agriculture, too, and also, as noted, in mining. Basically all the stuff that the Heartland does but that the two coasts do not do. And if the Fed raises rates while the European Central Bank is engaged in quantitative easing, is the dollar likely to strengthen more, stay the same, or fall vs. our foreign competitors in manufacturing and commodities? Historically, the dollar rises further in such an environment. No one else is likely to raise rates when we do, so all the existing exchange rate distortions will just be made worse. Historically, strong dollar strengthens the stock market (foreign capital flows in, chasing the appreciating currency), with eventual knock-on effects like rising real estate values in “preferred” regions (usually those sunnier or more coastal or both). Strong dollar is a One Percent Solution.–Walker Todd, Chagrin Falls, OH

    Like

    December 1, 2015

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