U.S. manufacturing growth greeted with cautious optimism

October 2, 2012

As U.S. manufacturers celebrate the slight momentum that their business strategy has created, growth for factories in the euro zone in the last financial quarter has contracted, leading some economists to believe that American companies may even benefit from a position of relative strength.

According to Reuters, the manufacturing contraction in Europe has been mirrored in China, which suffered a seventh successive quarter of slow economic movement, with industry reports suggesting that U.S. growth may be slow but there may be light at the end of the tunnel. The release of the Institute for Supply Management's index showed that manufacturing in the U.S. had expanded in the last three months, data that was backed up by a recent Markit report that had an average ranking of 51.4, just below the ISM figure.

In Europe the picture is slightly bleaker with Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) only rating manufacturing on the continent at 46.1, an indication that factory activity is contracting despite aggressive stimulus initiatives introduced by major European banks. In the opinion of economists, economies in the euro zone are facing a tough road for months to come, a situation that could see manufacturing orders head back across the Atlantic.

"This is something that is going to persist into the fourth quarter," said Nick Matthews, euro area economist at Nomura. "Even when you look at some of the forward-looking (PMI) indicators as a whole, they're still extremely weak for the area as a whole. The position still looks extremely vulnerable."

The slowing of consumer demand in Europe has affected Asia, with factories in China reporting that growth has slowed as uncertainty continues to course through the euro zone's economic veins. Officially, China has a PMI index of 49.8 which is only just below the growth figure of 50, but analysts believe that the country will continue to contract for some time as overseas orders drop, again a situation that could be exploited by U.S. manufacturers with a prudent business strategy.

According to the Christian Science Monitor, the slight upturn in manufacturing is due to the domestic market. The automobile industry has seen growth in recent months, as have companies who produce plastics, rubber and paper products. All of these businesses are reporting increased demand as the year draws to an end, a sign for cautious optimism as opposed to the gloom that seems to have enveloped other global competitors.