U.S. manufacturers adopt cautious approach in run up to election

October 31, 2012

With the October jobs report due to be released just in time for the presidential election on November 6, there are signs that the U.S. manufacturing industry contracted last month as companies wait to see who will be leading the country into the next financial year.

According to Bloomberg, the preliminary release of a report from the Institute for Supply Management-Chicago showed a range of projections for the manufacturing industry with business analysts expecting that figures would fall below the median reading of 50. Gains in consumer spending over the last two months and an increase in house prices had bolstered confidence among manufacturing companies, despite concerns that the country was heading towards a projected fiscal cliff in the opening months of 2013.

The figures released by the Chicago index showed a reading of 49.9, a slight contraction but one that economists believe shows signs that companies are retreating from the more confident manufacturing strategy seen as essential to the recovery of the national economy. With $607 billion in automatic tax increases expected to take effect in January 2013, coupled with a downturn in the global economy, analysts see the manufacturing industry as operating under a more prudent business strategy than hoped.

"The manufacturing sector is struggling," said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who forecast a reading of 49.4. "You’ve got global weakness which is hurting exports. You’ve got uncertainty with the fiscal cliff, which may keep people cautious."

Although the October report is not due to be released until November 1, there are signs that some sectors of the manufacturing industry are still relatively buoyant with new orders expected to hit 50.6 from 47.4 in September. Car manufacturers have seen sales slow in recent months but, according to Reuters, Boeing is selling 35 737s to Russia in a deal worth $3.5 billion while new orders for aircraft have shown a steady increase through the year.

Gross domestic product rose by 2 percent in the third quarter of the financial year, up from 1.3 percent in the second. However, the production index in October fell to 51.8 from 55.4 the previous month, with the factory index also recording a drop from 51.5 to 50.

"There’s just a great deal of uncertainty and there’s not a lot of demand," said Stephen Roell, president and chief executive officer of Johnson Controls Inc., based in Wisconsin. "I mean, there’s not a lot of growth in the underlying economy.