Several Headwinds Contributing to Slower Manufacturing Growth

By October 1, 2012Economy

In this Washington Post story from earlier today, “The Manufacturing Recovery That Wasn’t,” Neil Irwin argues that the U.S. manufacturing recovery has ended, or at a minimum, halted. He writes, “What is hard to discern is whether the softening in the manufacturing data in the past few months is another disappointing moment in a recovery that has been full of fits and starts, or the longer historical trend standing in the way of the U.S. factory sector reasserting itself.”

Since the end of the recession manufacturing has added more than 500,000 net new workers. The sector has also had an out-sized role both for its contributions to real GDP and for employment growth. This is why so many people have focused on manufacturing and its latest revival.

However manufacturers are facing several headwinds that will negatively impact the sectors growth and ability to continue to power the recovery. We are seeing a weakening in the global economy as well as slowing growth in exports and increasing concerns of a worldwide slowdown. Indeed, declining sales have been the main reason that a number of recent reports have shown contracting manufacturing activity, and even those who report modest gains in sales, production, and employment have clearly seen these levels decelerate in recent months.

Another of the main threats to manufacturing growth is the fiscal abyss. With possible tax increases and budget cuts on the horizon – unless the President and Congress avert them by year’s end – the U.S. economy will clearly suffer. Economists, including me, have said that we risk a recession in early 2013 unless policymakers act sooner rather than later. Yet, it appears that nothing will be done until the Lame Duck session of Congress at the soonest, and it is not certain that the fiscal abyss will be prevented then, particularly if current positions hold.

In a recent the recent NAM/IndustryWeek Survey of Manufacturers nearly 79 percent of manufacturers cited the uncertain political environment as a top challenge to their business.  Another survey found that two-third of small business owners said that these uncertainties was hurting their ability to expand, grow, or hire more workers. In other words, what ails the manufacturing sector right now is Washington and the inability of policymakers to deal with our fiscal issues.

Chad Moutray is chief Economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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