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One of the most public dramas that has played out in the downturn of the economy has been the manufacturing sector's struggles. Data released earlier this week shows reason for cautious optimism in the United States. For nearly the first time in four months, manufacturing grew within the United States. While the U.S. welcomes even the smallest improvement, other regions did not fare as well. Both China and the Eurozone continue to see the manufacturing sector of their economy contract.
The Institute for Supply Management publishes an index of national factory activity. A reading of 50 is the threshold between expansion and contraction with the higher index representing expansion. Based on this measurement the United States' factory activity registered at 51.5 showing a mild expansion. Even with the slight expansion the manufacturing growth in the United States is well off of its highs during the recovery. This reminds us just how vulnerable the manufacturing sector still is and seems to be worse in other parts of the world.
With manufacturing perhaps being the hardest hit sector of the economy throughout the financial crisis it comes as no surprise that manufacturing continues to contract in many countries across the globe. What does come as a surprise is that China – known for its manufacturing might – continues to contract. China’s official manufacturing purchasing managers index (PMI) came in at 49.8 for the month of September. This was the second straight month that manufacturing in China contracted and economists believe that this indicates a seventh straight quarter of slowing growth.
The Eurozone has had its own battle trying to recovery economically and while the Eurozone PMI increased from 45.1 to 46.1 in September, manufacturing in the region continues to contract. This marked the 14th consecutive month that the Eurozone’s manufacturing sector contracted illustrating the magnitude of the problems they continue to face. "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." Said Nick Mathews, a euro area economist.
While the increases in activity are a glimmer of brightness in what has otherwise been a bleak scene of late, they indicate the length the economy still has to travel to regain its footing. There is still a lack of demand for products on the consumer end for a whole host of reasons and until consumer confidence is regained and spending increases manufacturing may be in for rockier times ahead.
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