Manufacturing Activity Declines Again In December

Date: February 02, 2016

Indices Show Manufacturing Activity Continues To Be Sluggish

According to the latest Institute for Supply Management report, its index of manufacturing sector activity rose from 48 in December to 48.2 in January. Economists had forecast the index would come in at 48.4, Bloomberg News reported. The index indicates the sector is contracting when under 50. Bloomberg pointed out that factories are “buffeted by persistent weakness in the oil industry, the stronger dollar and cooling overseas markets that also limited growth last quarter.” However, the report “showed the gauge of new orders, a leading signal for production, grew for the first time in three months, which would help manufacturing to eventually strengthen.” TD Securities USA LLC economist Millan Mulraine said, “This may be signaling the start of some stabilization in manufacturing activity and U.S. economic activity.” The AP reported that BNP Paribas economist Derek Lindsey said, “Yet another sub-50 ISM print remains consistent with our view that there is little to suggest a turnaround in (manufacturing) in the near future.” The Wall Street Journal also highlighted the increase in new orders. ISM economist Bradley Holcomb said, “There’s some pluses and minuses here, but pretty much we’re on a slow patch and I think we’re trying to pick it up.” Reuters reported that the employment component of the index fell to the lowest level in six and a half years. Separately, financial information services firm Markit reported its index of manufacturing sector activity rose from 51.2 in December to 52.4 in January, ForexLive reported. The two indices can diverge because their survey universes do not correspond exactly.

What This Means For Small Businesses

Sluggish manufacturing growth continues to be an issue for small businesses, as it contributes to general uncertainty about overall US economic conditions. As NFIB Chief Economist William Dunkelberg said in the latest Small Business Economic Trends report, “The net percent of owners planning to add to inventory was unchanged at a net 0 percent for the third month in a row. With weak expectations for sales and business conditions, owners see no need to add to current stocks.”

Additional Reading

The Wall Street Journal examined the use of manufacturing data in determining the health of the US economy.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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