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Manufacturing in the United States is in an awkward place at the moment. According to the Institute for Supply Management, factory output was up by 0.2% through January, which is a slight increase but is still below the 50% margin, which implies an overall contraction in manufacturing. Currently, American manufacturing accounts for about 12% of the national economy, so this recent sluggishness doesn’t spell doom across the board, but it certainly does hurt some people.
Factories have been reporting reduced output and orders since the last quarter of 2015, which analysts have largely pegged to a strong dollar and lower oil prices, the latter of which has been forcing energy firms to cut spending. A tepid global economy also means less orders, resulting in less exports. With contracting manufacturing comes less jobs, resulting in layoffs, firings, or hiring freezes for an overall decline in employment in the sector.
Many hope that, by the next quarter, consumer spending will increase once more, supported by savings generated in the current, spend-thrift quarter. Consumer spending fuels about two-thirds of the American economy, and although it has been increasing over the past two years, it seems to have slowed to a crawl so far in 2016, and rose less in 2015 than it did in 2014.
With all that being said though, some factories are reporting an increase in orders and production, as evidenced by that 0.2% bump from January. If the trend continues, and we see an increase in spending after this stable period, it could actually work out quite well for some manufacturers. Although sales have slumped, they haven’t stopped, and decreased production means decreasing inventories as well. A spike in orders following the slow down in production means more work filling those orders, allowing factories to once again hire and get back to producing goods.