US Manufacturing Export Orders Contracting

Signs of renewed weakness
By Heide B. Malhotra, Epoch Times
May 30, 2013 Updated: May 30, 2013

A U.S. manufacturing revival was envisioned to improve the dismal employment situation, given many Americans have given up looking for a job or accepted part-time employment. LLC suggests in a May 15 report that based on Bureau of Labor Statistics (BLS) data, manufacturing in America’s metro areas has experienced an upswing, with the energy sector in the lead.

On May 1, the Institute for Supply Management (ISM) reported that the U.S. manufacturing sector has grown since December 2012, but at a slower rate. This conclusion is based on ISM’s Purchasing Managers’ Index (PMI), a number derived from monthly surveys of private sector companies and used to gauge economic health.

The ISM PMI decreased by 0.6 percent in April, from 51.3 percent to 50.7 percent, signifying slower growth. ISM explains that any PMI greater than 42.2 percent over several months implies growth in the overall economy.

On the other hand, Markit, a financial information services company, reports a slowdown in the U.S. manufacturing sector, blaming decreasing export orders and the employment situation.

“Slower growth could be linked to a combination of fiscal drag hurting demand at home while at the same time many export markets remain in fragile states. The latter led to a renewed decline in export orders in May,” states Chris Williamson, chief economist at Markit, on the Markit website.

The Markit Flash U.S. Manufacturing PMI fell from 52.1 points in April to 51.9 points in May, declining in both months. This PMI is now at its lowest since October 2012.

Although the PMI indicates a slowdown in growth, orders within the United States have increased, as well as hiring. However, the new hires work on product development and not in the processing of goods.

“With the PMI hitting a seven-month low, the U.S. manufacturing economy continues to show signs of weakening. Growth has slowed sharply in recent months, down from an annualised pace of 4.9% in the first quarter to just 1% in May,” Williamson said.

U.S. Federal Government Chimes In

The U.S. Census Bureau reported on May 24 that certain manufacturing factors improved in April after slowing in March. In March, new orders for manufactured durable goods decreased by 5.9 percent, while they increased in April by 3.3 percent.

Shipments of manufactured durable goods dropped in April by 0.6 percent, or $1.3 billion, to $227.1 billion, after having increased in March by 0.9 percent. Work-in-progress, or unfilled orders, increased by 0.3 percent, or $2.7 billion, after dropping in March by 0.5 percent. Computers and electronic products took the lead in the April increase.

According to the BLS, manufacturing jobs growth for April was flat, while during the past six months, it increased on average by 11,000 jobs a month.

The May 2013 Empire State Manufacturing Survey, published by the Federal Reserve Bank of New York, suggests that the New York manufacturing sector experienced a slight downturn this month, as several indexes lost ground.

“Indexes for the six-month outlook were generally lower, suggesting that optimism about future conditions had weakened,” the New York Fed states.

A report from the Federal Reserve Bank of Kansas City released on May 23 suggests that the Kansas City Tenth District manufacturing sector showed improvement after a seven month decline.

“Still, activity remains at only about year-ago levels and firms are having difficulty passing cost increases through,” states Chad Wilkerson, vice president at the Kansas City Fed.

Eurozone PMI Signals Manufacturing Downturn

“Eurozone manufacturing started the second quarter of 2013 on a weak footing, with conditions in the sector deteriorating at the sharpest pace in the year-to-date,” Markit states.

The eurozone manufacturing PMI has not been able to reverse its downward trend, which has been troubling the area since mid-2011. In April, the PMI decreased slightly to 46.7 points from 46.8 points in March.

Several countries, including Austria, Germany, and Ireland, experienced a manufacturing downturn at a faster rate than during prior months, while France, Greece, Italy, the Netherlands, and Spain experienced a slower pace of manufacturing downturn. Despite this positive sign, France, Greece, Italy, and Spain are still the countries with the greatest deterioration in manufacturing output.

“The German economy is important to observe, because it’s the largest economy in the eurozone and an economic slowdown in the nation can send the common currency region into another downward spiral, again affecting the global economy,” a May 24 article on the Profit Confidential website states.

Markit’s Williamson predicts that the eurozone manufacturing sector will not improve for quite some time to come.

Manufacturing Renaissance

Although the U.S. manufacturing upswing has not been significant, given the unemployment numbers, a May article on the Glenmede website suggests “manufacturing in the U.S. has indeed seen a resurgence.”

Although Glenmede, a private investment firm, addresses reshoring (a return of previously outsourced jobs or services), its reason for an increase in manufacturing is not because of reshoring, but because of growth in the natural gas production industry.

Reshoring manufacturing production could put many of the 6.3 million working-age unemployed people who want a job (BLS data as of April) back to work, taking them off the welfare payroll that cost U.S. taxpayers $1.03 trillion in 2011, according to the U.S. Senate Budget Committee.

Reasons for reshoring range from labor in foreign countries demanding higher salaries while unemployed Americans are willing to accept lower salaries, high shipping costs, better quality control, an upright legal environment, and less corruption.

According to Investor Place and other websites, companies that are considering bringing manufacturing jobs to America include Apple Inc., Ford Motor Co., General Electric Co., Google Inc., and Whirlpool Corp.

Labor analysts suggest that manufacturing jobs being reshored to the United States, as well as jobs created in the United States over the past months, account for only a few percent of the unemployed, especially since it is not known if any job actually went to an unemployed person. Therefore, a renaissance of the U.S. manufacturing industry is at this point likely a mirage based on wishful thinking.