US Industry Stagnates During The Recovery
For months the Manufacturing sector has been leading the recovery in the US. Economists pointed to data reflecting growth in manufacturing as a sign that the US economy was on the rebound. However, the recovery in the industrial sector has since stumbled. Growth and job creation, once robust in the sector, dwindled and stagnated in May.
Some areas of manufacturing are still experiencing growth however. For example mining and the manufacturing of tungsten extrusion dies and carbide tooling remain strong. However, other areas, like the auto industry have experienced setbacks due to the disaster in Japan. Japanese suppliers have been resilient, however power disruptions in the wake of the earthquake and tsunami have impacted their ability to supply needed parts to the Detroit auto makers. Industries related to housing have had little luck as well, in facts housing prices have proven that they have not bottomed out in recent months and have sagged once again. Low prices on existing homes means that construction of new homes will remain anemic in the foreseeable future. Additional factors are worrying manufacturing executives, at the top of their minds is the rising costs of energy, including fuel prices, and soaring costs of raw materials.
The American manufacturing industry is doing better than it has done decades, owners and manufacturing executives remain skeptical, according to a survey released Wednesday by business consultant Grant Thornton LLP. Grant Thornton LLP most recent Business Optimism Index found only 40 percent of respondents surveyed in May saying the U.S. economy will improve in the next six months. The Business Optimism report is generated quarterly and it reflects a 20 percent drop in confidence since February. The survey also found that 16 percent of the owners and manufacturing executives surveyed said they are planning on cutting their work force, up from 6 percent in February.
What this means is that companies will be taking a wait and watch approach over the next 6 months. Executives will be keeping an eye out for any wasteful spending or even any spending that can be put off. Cost cutting initiatives will be launched that can impact the purchasing of new equipment, further weakening the manufacturing sector. As these executives take a hard look at their books anything that can be considered discretionary spending may be cut. Most worrying is that they won’t be hiring new employees and will not be making any large investments, expanding or taking on new large new projects with confidence levels so low.
So what does all of this mean for the American recovery? That’s the worse part about it all. The industrial sector has been a bright spot in a generally gloomy economy. There are some up sides though. Despite all of the bad reports, dire projections and the pessimistic views of the manufacturing executives the industrial sector isn’t doing that badly. Companies have more money in the bank and are generally healthier then they have been in the last 20 years.
On top of that some possible relief may be on the way for US manufacturers. President Obama has made plans to find more jobs for Americans. His ideas include training workers for jobs that are tough to fill, such as advanced manufacturing, and streamlining the permit process in hopes of kick-starting infrastructure and construction projects. There is only so much a president can do for an ailing job market though and honestly these programs aren’t likely to excite industrial business owners and management, a group not known for leaning towards the Democratic Party.
The fact is that manufacturing might not be a great thing for Americans to hang their hats on right now, but there aren’t really any great options out there when it comes to finding jobs for the 9.7 percent of unemployed workers out there. Hopefully in the end the recent setbacks prove to be nothing more than another bump on the road to a fully recovered US manufacturing industry. One can hope right?
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