U.S. manufacturing suffers slightly due to global factors

September 5, 2012

The U.S. manufacturing sector continues to outperform its top competitors, but American firms are beginning to see the significant impact that global economic factors can have on an industry, no matter how honed the business strategy is.

The Los Angeles Times reported that U.S. factory activity shrank for a third straight month in August, and this information, coupled with a drop in construction spending, does not bode well for companies that are producing goods in America.

According to the news outlet, the Institute for Supply Management's index of manufacturing activity fell slightly to reach 49.6 in August, dipping below the 49.8 that was recorded for the previous month.

Though this marks the first time that the sector has been below 50 three straight months on the ISM index, it is a sign that even the strongest industries are not immune to the wrath of the ongoing global economic crisis.

China recently experienced a similar drop in factory activity, as its sector is going through a difficult time – also the worst in three years.

"The manufacturing recovery is at least temporarily out of steam," Nigel Gault, chief U.S. economist at IHS Global Insight, told the Times.

However, despite the bad news for manufacturing firms around the globe, the injection of stimulus into economies around the world could help companies regain some of the production that was cut because of a drop in demand.

The Associated Press reported that unless some measures are taken by the U.S. Federal Reserve or the European Central Bank, there may not be much positive news for manufacturing firms in the near future.

However, others have noted that stimulus measures may only hurt further growth potential in the sector.

Paul Dales, a senior economist at Capital Economics, told the news outlet that the continued uncertainty in Europe, the slowdown in demand in Asia and potential and impending tax increases and spending cuts in the U.S. "is taking its toll on activity."

"At this level, the index remains consistent with…growth in the third quarter of between 1.5 percent and 2 percent," he told clients in a note.

Despite these assertions about potential U.S. Fed stimulus measures, Chairman Ben Bernanke has already noted that the bank will do more to help the struggling economy.