The Precarious State of U.S. Manufacturing
Impact of U.S. and China Trade Tensions
The U.S. continues to impose tariffs on over $200 billion of imports from China. Trump and Xi Jinping have agreed to reinstate trade talks. As the talks continue to drag out, it is clear that U.S. manufacturing is being negatively impacted by the trade wars. Private investment in manufacturing has now dipped to its lowest level in roughly two and a half years, and the National Factory Activity Index is at its lowest point since October 2016. While the slowdown in manufacturing has been anticipated by many, including Dr. Alan Beaulieu, economist from Institute for Trend Research (ITR) Economics, trade tensions are expected to keep the slowdown ongoing.
Other Factors to Slowdown
While consumer spending is on the rise, there are many other factors working against the U.S. manufacturing sector. Decline in the sector has been linked to low inflation, slowed wage growth, and a slowing housing market. Also due to less activity in the market, companies are facing an excess of inventory as supported by the New Orders Sub-Index being at its lowest point since December 2015.
Hope on the Horizon
Even though many of the current indicators are not encouraging for the manufacturing sector, there are factors indicating economic growth:
- Companies are hiring more workers as seen by the Factory Employment Gauge. Also showed an increase in June manufacturing payrolls after a flat May.
- Companies decreasing too much in inventories leads to opportunities for other companies.
- S. Dollar has risen against multiple currencies.
- Federal Reserve has indicated potential of cutting interest rates to spur investment and boost already low inflation rates.
While the U.S. manufacturing sector has showed a slowdown during 2019, studies have found a greater slowdown for European and Asian manufacturing sectors. As trade talks continue, U.S. business will have to continue to adapt to overcome the competition.
All manufacturers have the potential to be impacted by the continued international trade tensions. The impact may be difficult or impossible to prepare for fully, but a simple step you can take is to begin researching. If you’d like to discuss your options in more detail, feel free to contact us. Our industry leaders can connect you with the resources you need. We look forward to speaking with you soon.