Energy, Trade Deficits Slow Manufacturing Growth - Modern Distribution Management

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Energy, Trade Deficits Slow Manufacturing Growth

Production rises in April, but headwinds keep expansion in check.

The struggling oil & gas market and a growing trade deficit continue to provide fierce headwinds for the U.S. economy, and specifically have proven to be a significant drag on manufacturing.

The April Manufacturing ISM Report on Business PMI was 51.5 percent, the same as in March. That marked the sixth month without an increase, and while a reading above 50 percent indicates that the manufacturing economy is generally expanding, as it did in April, the level suggests a slow growth rate.

Daniel J. Meckstroth, chief economist for the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, attributed the slower growth to two factors – the worsening trade deficit (driven, in part, by a strong U.S. dollar) and slumping oil prices.

“Imports are apparently growing faster than exports and we know imports are 60 percent larger than exports in the trade accounts," Meckstroth said. "The increase in the value of the dollar, and particularly the strong U.S. growth relative to other advanced economies, is unbalancing trade. Foreign trade will be a major drag on manufacturing activity and the general economy this year and next. Another downside in the report is that the manufacturing employment index moved from no growth in March to a decline in April."

Oil & gas was on the minds of many at the recent Industrial Supply Association annual convention, and Meckstroth's comments about the ISM Report on Business echoed that concern.

“Falling prices for energy and other commodities are evident. The report suggests that the price decline decelerated somewhat in April,” Meckstroth said. “Deflation in commodity prices is good for the economy when it is the result of increased supply driving down prices. We believe manufacturing activity will repeat the pattern of last year and pick up briskly in the second and third quarters.”

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