Tags: manufacturing | us | economy | importance

Manufacturing Is No Longer That Important to US Economy

Manufacturing Is No Longer That Important to US Economy
(Dollar Photo Club)

By    |   Monday, 02 December 2019 01:02 PM

So, at a moment when the U.S. and China apparently have difficulties to come to an agreement for their “phase one” trade deal, President Donald Trump reinstalls tariffs on steel and aluminum from Argentina and Brazil. Brazil and Argentina both received exemptions from the 25 percent steel tariffs and 10 percent aluminum tariffs in May 2018.

Trump tweeted this morning: “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries. The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen - Fed!”

The Argentine peso and the Brazilian real weakened against the dollar on the news.

Meanwhile we just received:

  1. The IHS Markit U.S. November Manufacturing PMI that came in at a seven-month high amid stronger upturn in new orders. Output and new order growth rates improve to 10-month highs, we also see the fastest rise in employment since March, but business confidence remains subdued.
  2. The November 2019 Manufacturing ISM report on business came in at 48.1 percent, a decrease of 0.2 percentage point from the October reading of 48.3 percent. Timothy Fiore, Chair of the Institute for Supply Management (ISM) commented: November was the fourth consecutive month of PMI contraction, Demand contracted, Consumption contracted and Inputs were also lower. Overall, sentiment this month is neutral regarding near-term growth.

Once again, the two surveys don’t give the same picture, which shouldn’t be alarming investors.

The fact is that I believe the U.S. isn't, for the size of its economy, a noted manufacturer. It does still make things that export very well (like for example intellectual property and Treasury bonds), but the manufacturing sector is of declining importance to the overall U.S. economy.

It is a sector that has been battered by strong headwinds of late of course. The policy of putting tariffs on and taxing global supply chains has hurt large U.S. manufacturers. The uncertainty of global trade rules also has led to a swift collapse in “investment spending.”

Manufacturers of equipment have therefore suffered a second blow, although admittedly this is something that hurts an economy like Germany more than it hurts an economy like the United States.         

Over in the United Kingdom, in the run-up to the elections next week, that will take place on Thursday, December 12, opinion polls have shown a decline in the Conservative Party’s support relative to Labor, albeit with a very wide range of numbers being expressed.

The British pound (sterling) is still relatively stable, at least for now.

Meanwhile in China, factory activity unexpectedly edged up to a near three-year high of 51.8 in November from 51.7 in October. This was the fourth straight month of growth in factory activity. The new Caixin-Markit data confirm the official PMI data of China’s National Bureau of Statistics that were released on Saturday and that came in at 50.2 in for November, up from 49.3 in October, which was its highest level since March.

Caixin, which is a private Beijing media group, commented if trade negotiations between China and the U.S. can progress in the next phase and business confidence can be repaired effectively, manufacturing production and investment is likely to see a solid improvement. 

On Sunday, China’s central bank (PBOC) governor Yi Gang wrote in an interesting article published on the WeChat account of Qiushi, which is China’s Communist Party's flagship magazine “The world's economic downturn will likely stay for a long time. We should stay focused and targeted, while not competitively lowering interest rates to zero or engaging in quantitative easing.”

The governor stated that the People's Bank of China should be prepared for a “mid- and long-distance race” and stick to conventional policy as long as possible, the Business Times reported.

Yes, food for thought for everybody, which includes central bankers …

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

 

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HansParisis
I believe the U.S. isn't, for the size of its economy, a noted manufacturer. It does still make things that export very well (like for example intellectual property and Treasury bonds), but the manufacturing sector is of declining importance to the overall U.S. economy.
manufacturing, us, economy, importance
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2019-02-02
Monday, 02 December 2019 01:02 PM
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