They are not catastrophic by any means but by this point in the year it has been expected they would be tracking better than they have been. The US PMI sunk to 51.1 from 52.7 in July and that is the weakest it has been since March of 2013. The expectation was that August would be stronger than this given the other manufacturing data that has been coming out of late. The analysts are pointing to several familiar factors at this point but there are differences of opinion as to how vital these have been or how long these influences will last.
The data shows that those manufacturers that orient towards the domestic economy are doing fairly well as there has been growth in sectors such as automotive, aerospace and construction. Not that this has been breakneck growth but it has been respectable and has offset the declines in the energy sector for the most part. The decline in activity has been in those sectors that aim at the global economy as there have been some consistent and serious headwinds. The strength of the dollar is one of these but so is the general economic weakness of the markets that US companies sell to.
Analysis: The latest blow to the exporter is the crash of the Chinese economy. It is important to note that the recent activity in China is not new and it is still perplexing that the global markets are reacting so strongly now. This pattern of slow growth has been in place in China for nearly two years now. The impact on the US exporter is indirect as China has never been a major destination for US goods. The challenge for the US exporter is they sell to countries that sell to China.
Australia is slipping into formal recession as China no longer buys the amounts of iron ore and coal they once did. The Koreans are looking at a 14.7% decrease in exports as Chinese demand fades. Brazil was once very excited about seeing China become their number one trading partner as they had visions of forever selling China all that Brazilian iron ore and soybeans and oil. The levels of Chinese import have fallen drastically and Brazil is in distress. All of these are states the US exporter has been engaged with and as their economies contract the opportunities fade. The strength of the dollar could not be coming at a more inopportune moment as the exporters in the US are already trying to sell to countries in some financial distress. Europe is a moribund market anyway as much of the region still struggles with the recession’s aftermath.
Add in the challenge of a dollar that has gained against the euro and the US exporter is in trouble. In some respects the fact that the PMI didn’t sink further is a break. With all these export headwinds it could easily have fallen into contraction territory by now and may yet if all this market turmoil doesn’t calm down.
Courtesy Dr. Chris Kuehl, Armada Corporate Intelligence