Manufacturing Sector Tries to Shake Off Two-Year Decline
The private sector has always been viewed as the fuel for America’s economy. According to data from the U.S. Department of Commerce, private industry historically drives about 88% of all U.S. economic growth. Federal, state and local government enterprises drive the remaining 12%.
Of the 14 private sector industries that comprise the U.S. economy, manufacturing ranks No. 3 – accounting for, on average, 11% of all Gross Domestic Product (GDP). GDP is the total dollar-value of all goods and services produced by the U.S. during the year. In 2023, the U.S. manufacturing sector produced more than $2.8 trillion in goods and services. The Financial Activities sector is the largest private sector, producing 21% of all U.S. economic output while the Professional & Business Services sector ranks No. 2 with 13%. In short, if you want a strong economy, the manufacturing sector can help lead the way. But over the past two years, the U.S. manufacturing sector has struggled.
Released each month by the Institute for Supply Management (ISM), the ISM Manufacturing Index is a leading gauge on the health of America’s manufacturing sector. The ISM compiles its data from monthly surveys received from purchasing and supply executives from more than 400 U.S. manufacturing companies. The goal is to have survey respondents answer questions that provide insight on the level of demand for U.S. manufactured products.
The index has a benchmark of 50. Any reading above 50 indicates the U.S. manufacturing sector is expanding. Below 50, the sector is contracting. The greater the index number is above or below 50, the greater the strength/weakness within the manufacturing sector.
In August, the ISM Manufacturing Index was reported at 47.2, slightly below the 47.5 that Wall Street had forecast. The U.S. manufacturing sector has now contracted in 21 out of the last 22 months. The lone exception was in March 2024 when the index was reported at 50.3. Over the past 12 months, the average index level is 48.1 with a high of 50.3 (March 2024) and a low of 46.6 (November 2023).
The weakness in the manufacturing sector is being reflected in the labor market. So far this year, the manufacturing sector has lost 33,000 jobs. Manufacturing joins the Mining & Logging sector (-8,000) as the only two sectors within the economy to have a net loss of jobs in 2024. Since December 2023, the number of manufacturing job openings has also declined by 100,000.
The importance of the manufacturing sector is its sizable contributions to our nation’s economic growth and to the labor market. It currently employs nearly 13 million Americans – more than 8% of the nation’s total workforce. Having the U.S. manufacturing sector contract for 21 of the last 22 months is a concern to both Wall Street and Main Street. Not only does it convey a weak demand for America’s manufactured goods, but it also reflects the risk of a slowdown in the broader U.S. economy.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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