Although US Manufacturing Cools, Underlying Momentum Remains

U.S. manufacturers still show a strong growth pattern, even after a slight decline in factory activity between October and November 2014. Manufacturing data points to more new orders and more exports for American companies, a sign that the U.S. economy continues to move forward despite sluggish manufacturing growth in Asia and Europe.

Reuters reports the Institute for Supply Management's index of national factory activity fell from 59 to 58.7 from October 2014 to November 2014. The October mark was a 42-month high, which showed the strength of American manufacturing growth and a rebounding economy. A reading above 50 for the ISM's number denotes expansion among manufacturers. A separate index from Markit showed a decline in the U.S. Manufacturing Purchasing Managers index, but that manufacturing data reveals short-term numbers rather than an overall pattern.

Manufacturing data remain strong, despite two months in a row of less planned spending on equipment. Sluggish stock market prices for energy stocks have not indicated a manufacturing slowdown to this point. A slower-than-expected start to the holiday shopping season lowered some retail stocks, but manufacturers still show sustained growth patterns moving forward.

New orders reached their highest levels in three months, and exports also grew. Electrical equipment, appliance and components companies continue to hire people as the economy improves after years of recession. American companies appear to be making up the difference in lags coming from European and Asian companies. Manufacturing data show prices paid by factories fell to their lowest levels in nearly 2.5 years due to plummeting oil prices.

What do these numbers mean? Fewer expenses and more orders mean more profits for manufacturers. Consumers who spend less on gasoline have more free money to spend during the holiday season, which denotes more holiday hiring to meet demand. Lower crude oil prices have shocked the energy sector, but manufacturing stocks have not declined as badly since oil's huge sell off. Gasoline prices will rise once demand increases for consumers and shipping companies that decide to move around more due to falling prices.

U.S. manufacturing trends point to long-term growth and opportunities for more Americans. Advanced manufacturing techniques, coupled with training initiatives for employees, point to higher-paying jobs for ordinary workers. Manufacturing data in September 2014 pointed to a decline in the Purchasing Manager's Index to 56.6 before it rebounded to a 3.5-year high of 59 the next month, so month-to-month fluctuations do not necessarily indicate a pattern of decline. The overall trend is that of sustained growth.

A number of factors help determine the short-term future of U.S. manufacturing. The true test of American factories will come in the first quarter of 2015 when manufacturing data answers questions regarding energy prices and the post-holiday shopping season. Can auto makers and appliance manufacturers maintain momentum of improved job numbers? Will consumers spend more on big-ticket items now that gasoline prices are low? How does transportation deal with cheaper gas?

Photo courtesy of Buick Regal at Flickr.com