In Spite of Consumer Spending Rising, Manufacturing Remains Weak

Factory data from the United States remained relatively weak in August 2015 as manufacturing output fell 0.5 percent due to a 6.4 percent decrease in automobile production. Auto plant output rose 0.9 percent in July, but economists note that the September report from the U.S. Federal Reserve did not take into account seasonal adjustments.

The manufacturing output report seems to indicate a slowdown in U.S. manufacturing, although without automobile plants in the equation, U.S. manufacturing was flat instead of slowing. U.S. plants faced rough times over the summer due to a slowing Chinese economy, lower oil prices and a strong overseas dollar that makes supplies more expensive. New York state's manufacturing contracted for the second straight month, although other states seem to have added more manufacturing jobs to the economy.

Automobile production slowed at the end of the summer due to regular, scheduled plant shutdowns that each manufacturer implements at this time of year. Even if economic experts know this, everyday investors may not take into account unseen factors in manufacturing output. Raw data show the U.S. economy may not yet be fully recovered from the economic downturn of 2007, even as the Fed mulls an interest rate hike to bolster a growing economy.

Despite a lower manufacturing output, consumer spending rose in August due to several factors. Lower gas prices means consumers have extra disposable income. Retail sales excluding autos, gas, building materials and food services increased 0.4 percent in August to top off gains of 0.6 percent in July 2015. Lastly, core retail sales remain unchanged despite huge stock sales during September's volatile sell-off.

Manufacturing in specific states continues to do well. Wisconsin added 6,516 manufacturing jobs from July 2014 to July 2015, according to the 2016 Wisconsin Manufacturers Register. This number reflects a 1.1-percent increase. The food processing sector remained responsible for 2.8 percent of that job increase in Wisconsin.

Contracting manufacturing output runs counter to the momentum shown by U.S. factories during 2015. A reshoring movement helped increase U.S. manufacturing jobs thanks to higher overseas wages, more efficient manufacturing processes in America and a better overall work force. Although a small percentage of firms have returned from China thus far, advanced technology and collaboration among smaller companies may increase the reshoring effort. This push led to 50,000 more jobs added between January 2010 and May 2015, yet the recovery must continue to replace the 6 million manufacturing jobs lost from 2000 to 2009.

Manufacturing and manufacturing output accounts for 12 percent of the American economy. Although a 0.5-percent loss seems small, that amount may make investors take a second look at how the data stacks up against the global economy. Once Chinese manufacturing stabilizes, investors and the Federal Reserve may re-evaluate U.S. factories.

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