Manufacturing down in US, expanding in China

on Monday, December 3, 2012

Manufacturing down in US, expanding in ChinaRecent reports have revealed that while domestic manufacturing is on the decline, offshore manufacturing in China is increasing. A recent report from the Institute for Supply Chain Management (ISM) indicated manufacturing in the U.S. has declined for the fourth time in the past six months, and it is currently at its lowest level since July 2009. The ISM's index of activity fell to 49.5 in November from 51.7 the previous month.

Production slowing in the US
There is much speculation as to what is behind the rapidly-shrinking manufacturing sector. Many companies fear the upcoming "fiscal cliff," a combination of tax increases and spending cuts that will kick in automatically if the federal government fails to reach a budget deal by the end of the year. According to Fox News, businesses' concern about this situation has resulted in many corporations choosing to hold off on machinery and equipment purchases and ease up on production until they know the fate of the economy.

Hurricane Sandy was also to blame, according to some experts, as the devastating storm disrupted production lines in factories along the East Coast and led to a decrease in spending on consumer goods. However, the ISM survey claims the natural disaster had a negligible impact on November activity, according to Fox News.

The storm was not the only reason for a decrease in consumer spending. Reuters reported that consumer sentiment data in November was weak, as many are worried about the fiscal cliff, tax increases and the health of the economy in general.

"Overall, today's report suggests that the manufacturing sector is likely to remain a weak point in the recovery for a few months yet," said Jeremy Lawson, an economist at BNP Paribas, according to Reuters.

Factories increase output overseas
According to Bloomberg Businessweek, China's Purchasing Managers' Index, which determines the strength of the manufacturing industry based on orders taken, employment and actual production, made significant gains in November. The index rose to 50.6, its highest level in seven months.

Companies have taken their manufacturing operations to China for years, in order to enjoy lower operating costs. While some companies have taken to nearshore manufacturing in the years since the recession hit in order to have better control over shipping expenses, quality management and costs, many still operate in China, a trend that may continue based on the strong data coming from the country.

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