Is the Manufacturing Industry Headed for Full Recovery?
The latest report issued by the Tempe, Arizona-based Institute for Supply Management (ISM) showed that manufacturing picked up in September – the fourth consecutive month it registered an index growth. Economic activity for the month of September unexpectedly expanded which is a clear indication that American factories were the economy’s source of strength before the government shutdown.
Strongest Factory Index Reading
The ISM’s factory index registered 56.2%, the strongest since April, 2011, increasing by 0.5% point from August’s reading of 55.7%. September’s PMI (Performance of Manufacturing Index) reading is the highest overall reading in 2013. A PMI reading greater than 50% is a general indication that the manufacturing economy is expanding; below 50% indicates it is contracting.
Improved Business Activities
The rebounds in housing and automobile industries spurred growth while assembly lines at factories and plants buzzed for companies involved in the manufacture and production of various products, from appliances, furniture, lighting fixtures and exposure lamps, to technology and communication gadgets. Steel and metal manufacturers have shown similar increased activities.
Keeping the Momentum
A chief US economist and regarded as the best forecaster of ISM index for the past couple of years, Paul Ashworth, emphasized the importance of stronger construction activity from the housing industry and an upward trend in investment in keeping the momentum of the manufacturing performance. But, if the government agencies remain closed, manufacturing and other industry as well as the private sector will suffer the consequences of the shutdown impact.
Outside the US, factories and manufacturing plants are showing similar signs of improvement. That refers to Euro-area factory output that expanded in September and Japan’s large manufacturers gaining the highest confidence in the third quarter in a very long time. The improved showings made by the manufacturing industry provide a big boost to the country’s economy as 12% of the economy is accounted for from the manufacturing sector.
Overcoming the Current Challenge
To sustain the encouraging expansion activities, manufacturing must find a way to overcome yet another challenge caused by the budget standoff in Washington which led to the unexpected federal government shutdown in 17 years, affecting about 800,000 furloughed federal employees and workers.
Impact of US Shutdown
The US will suffer a loss of at least $300 million a day in economic output as a result of the partial federal shutdown. While the figure is but a fraction of the nation’s $15.7 trillion economy, the figures are expected to grow over time as deferment of purchases from consumers and delay of expansion plans from businesses are the natural reactions such shutdown will elicit.
The challenge, therefore, for the manufacturing sector after a sterling performance, is to convince the government how the shutdown will just waste what the manufacturers have tried so hard to achieve to help the country’s economy.
Will the US government see this side of the economic equation?