22 September 2017

Overseas Slowdown Pinches U.S. Factories

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Slower global growth is starting to weigh on demand for American-made goods, casting a cloud over the U.S. manufacturing sector. A closely watched gauge of factory activity declined in January to its lowest level in a year, according to the Institute for Supply Management. The purchasing managers group said its key index, released Monday, continued to signal expansion in the nation’s industrial sector, albeit at a slower pace.

The exports gauge, however, fell into contractionary territory for the first time in more than two years. Similar gauges abroad showed sluggishness in China, Europe and elsewhere that has reduced demand for American factory products. Exacerbating the weakened demand: The dollar has strengthened against other major currencies, so U.S.-made goods are more expensive for foreign buyers.

Headwinds to sales in foreign markets could pose a problem for the U.S. economy more broadly. Export growth slowed in the final three months of 2014 while imports surged, together subtracting a full percentage point from gross-domestic-product growth, the Commerce Department said last week.

The U.S. economy slowed as 2014 ended, with economic output growing at a 2.6% annual rate in the fourth quarter compared with a muscular 5% pace in the third quarter. But it remains a bright spot in the global economy. The International Monetary Fund last month downgraded its projection for world growth this year to 3.5% from an earlier estimate of 3.8%, but upgraded its estimate for U.S. growth to 3.6% from 3.1%.

Monday’s report was the first broad reading on U.S. factories in the first month of the year. The manufacturing sector generates 12% of the nation’s economic output and employs 12.2 million people, nearly 9% of total payrolls. The ISM’s overall index fell to a seasonally adjusted 53.5 in January from 55.1 in December and 57.6 in November. A reading over 50 indicates expansion, while a reading below 50 signals contraction.

Fourteen of the 18 industries in the survey reported growth, but January’s reading was the lowest since January 2014. The decline was broad-based, with gauges of new orders, production, employment and supplier deliveries all falling from December. But those four components remained above the 50 threshold. Bradley Holcomb, who oversees the ISM report, described comments from firms interviewed in the survey as pointing to a largely positive outlook.

The exports index, however, was 49.5 in January compared with 52.0 in December, moving into contractionary territory after 25 straight months of growth. In addition to the troubles from overseas and pressure from a stronger dollar, exports have also been dented by a technical factor. Traffic at West Coast ports has been disrupted, slowing the flow of parts and finished goods, ISM said.

Click here to access the full article on The Wall Street Journal.

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