US manufacturing struggles; rising income boosts outlook
December 23 2015 08:52 PM

Workers inspect a jacket at a manufacturing facility in Lowell, Massachusetts. US manufacturing, which accounts for 12% of the economy, has been hit by efforts by businesses to reduce an inventory bloat and sluggish global demand, which has curtailed new orders growth.

Reuters
Washington


A gauge of US business investment plans fell in November and the prior month’s increase was revised sharply lower as the drag on manufacturing from a strong dollar and spending cuts in the energy sector showed little sign of abating.
But the outlook for the economy remains encouraging, with other data yesterday showing personal income increased for an eighth straight month in November, which should help to support consumer spending next year.
“The gain in income should prove a tailwind to fourth-quarter GDP growth as consumption remains the most prominent driver of domestic growth activity,” said Gennadiy Goldberg, an economist at TD Securities in New York.
The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.4% last month. October’s increase in orders for these so-called core capital goods was revised down to 0.6% from 1.3%.
Manufacturing, which accounts for 12% of the economy, has also been hit by efforts by businesses to reduce an inventory bloat and sluggish global demand, which has curtailed new orders growth.
The dollar has gained almost 20% against the currencies of the US’ main trading partners over the last 18 months.
Plunging crude oil prices, which on Monday plumbed their lowest levels since 2004, have put pressure on oilfield services firms like Schlumberger and Halliburton, forcing them to slash capital spending budgets.
A survey early this month showed manufacturing contracted in November for the first time in three years. Economists polled by Reuters had forecast core capital goods orders dipping 0.1%.
Core capital goods shipments fell 0.5% last month after October’s downwardly revised 1.0% drop.
Shipments of these goods are used to calculate equipment spending in the government’s gross domestic product measurement. They were previously reported to have declined 0.5% in October. In another report, the Commerce Department said income increased 0.3% last month after gaining 0.4% in October. Wages and salaries advanced 0.5%, adding to a 0.6% gain in October.
Prices of US government debt slightly pared losses after the data, while the dollar pared gains against a basket of currencies. US stock index futures were trading higher.
A tightening labour market, marked by an unemployment rate that is in a range some Federal Reserve officials consider consistent with full employment, is starting to lift wages.
That in turn could gradually push inflation toward the Fed’s 2% target and enable it to further raise interest rates next year. The US central bank hiked its benchmark overnight interest rate last week by 25 basis points to between 0.25% and 0.50%, the first increase since mid-2006.
Last month, a price index for consumer spending was unchanged after nudging up 0.1% in October. In the 12 months through November, the personal consumption expenditures (PCE) price index was up 0.4%, the largest increase since December, after rising 0.2% in October.
Excluding food and energy, prices nudged up 0.1% after being unchanged in October. The so-called core PCE price index rose 1.3% in the 12 months through November, for the 11th straight month.
The Commerce Department’s Bureau of Economic Analysis inadvertently released part of the consumption portion of its report late on Tuesday. It showed consumer spending increased 0.3% last month after being unchanged in October.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3% when adjusted for inflation after holding steady in October.

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