Economic volatility separates the essence of production and its weaknesses. | So Good News
US companies are facing rising interest rates; They are braving the effects of a strong dollar and a global economic slowdown. For some of them, at least, it may not be possible to continue.
The Institute for Supply Management reported on Monday that its manufacturing index fell to 50.9 in September from 52.8 in August. But it’s been above 50 for 28 straight months — the cutoff between manufacturing contraction and growth. Similarly, A manufacturing index from S&P Global showed US activity continued to grow last month.
The recovery of manufacturers from the downturn experienced early in the pandemic has been remarkable. The support many households received from the government provided them with much more demand as consumer appetite shifted towards commodities, and output rebounded quickly. There were also jobs: there are now more factories than ever before – something that hasn’t happened since the recession of the 1970s.
But the environment for manufacturers has gone from challenging to grim over the past several weeks.
Interest rates that pushed the average rate on 30-year fixed-rate loans to 6.7% at the end of September from 5.6% at the end of August will further reduce housing activity, an important source of income for Freddie Mac, according to Freddie Mac. Demand for many factories. Not only will builders be able to order fewer items, but there will also be fewer people filling their newly purchased homes with appliances and other items.
At the same time, On a trade-weighted basis, the dollar was 12% higher than at the end of last month, according to the central bank. Accounting for different inflation rates, it is likely to go up significantly more.
While exchange rate dynamics take time to affect movement, the strength of the dollar makes it more difficult for US-based manufacturers to compete on price with their domestic and foreign counterparts. Worse, Much of the dollar’s strength stems from a dire economic outlook overseas, where energy costs have risen further due to Russia’s invasion of Ukraine. This means that the export market is deteriorating.
But the news for US factories is not uniformly bad. There still appears to be strong underlying demand for new cars, for example, and easing semiconductor shortages will make it easier to meet that demand. That’s important because the auto industry and many of its suppliers are the biggest players in American manufacturing. In addition, Epidemic disruptions in supply chains are forcing businesses to look for goods and materials closer to home. Finally, American manufacturers retain a cost advantage over their European counterparts: their energy costs are significantly lower.
That’s why some manufacturers are able to continue to do well despite the tough environment. But there will be losses.
Write to Justin Lahart at [email protected]
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