According to the Institute for Supply Management's Manufacturing Index, domestic manufacturing in the United States is in its fourth month of contraction with a litany of reasons to blame.
The ISM's Manufacturing Index is a key figure representing the growth, or lack thereof, in domestic manufacturing. The figure represents industries that are planning to expand, with any number below 50 indicating contraction. The November report by the ISM was 48.1%, well below the expected 49.4% and down from 48.3% in October. U.S. Manufacturing has been in steady decline since August, and while there has been some recovery, it is far from enough to reverse the ongoing contraction.
The culprits for the sobering report are many, but many believe the chief culprit to be the sharp drop in global demand caused by the still ongoing Sino-American Trade War. The lack of orders and the shrinking backlog has many factories laying off workers, a symptom of the ongoing corporate consolidation in the face of declining sales due to the trade war. Speculation by industry experts points to a potential "bottoming out" for the downward spiral of U.S. manufacturers, but there is little confidence that recovery will occur anytime soon.
The report contributed to the Dow Jones Industrial Average's (NYSE: DIA) 200 point drop during trading on Monday. The report coincided with reports that U.S. President Donald Trump will re-impose metals tariffs on Brazil and Argentina. Confidence among Wall Street investors was already low due to the ongoing lack of progress in Trade War negotiations; despite assurances of progress being made by the President, there continues to be no certainty that there will be a definite end to the ongoing dispute. Worries that negotiations will not produce a result before new tariffs take effect on Dec. 15 have left investors anxious.
The situation for the U.S., while dour, is a painful reality faced by many other economies as well. Factories in the U.K. face record layoffs in the face of declining manufacturing, a situation that almost mirrors the scenario unfolding in the United States. In general, European manufacturing faces a similar downturn.
Should global demand not improve, U.S. manufacturing will likely not recover anytime soon. Additionally, if the Dec. 15 deadline arrives with no end to the trade war, domestic manufacturing faces the possibility of even less demand than there currently is with existing tariffs in place.