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.
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