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Why the US manufacturing industry is seeing a recession

Why the US manufacturing industry is seeing a recession

All industries progress through boom and bust cycles, and the manufacturing industry in the United States is currently shifting downward. According to new regional index reports this week, manufacturing is down across the board in the US—all seven regional manufacturing purchasing manager’s indexes reported contraction. In other words, the industry is in a recession.

As Business Insider reports, this can be attributed to three key factors: a weakened energy sector, a decrease in investments from the mining sector, and a decreased demand from China that has lessened revenue from international trade. This decrease in demand in part has led to manufacturing outpacing sales.

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The report consults with expert analysts who note that this contraction is not a fluke and is likely to continue in the near future:

[Pantheon Macroeconomics’ Ian] Shepherdson thinks these conditions will persist, writing on Thursday that, "No one should be surprised from soft numbers in the industrial economy, regional or national. Just as the downshift in capex in the oil sector began to ease, the strong dollar and the slowdown in China's industrial economy have bitten, hard, and likely will inflict more pain over the next few months."

 

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But due to the industry’s cyclical nature, while the recession may be drawn out it will not last forever. Renaissance Macro analyst Neil Dutta told Business Insider that the industry will strengthen once again with time and with the upswing of trade:

"Trade is an important driver of manufacturing activity since trade is dominated by manufactured goods. Part of the weakness in trade is cyclical, given the slump in the global economy. Monetary policy has eased globally in response to soft growth and with a lag, this should boost activity."

 

[SOURCE: Business Insider]

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