Factory activity caps worst quarter in three years: Markit

NEW YORK Mon Oct 1, 2012 9:02am EDT

Rolled steel is seen after being treated on the pickle line at the Severstal steel mill in Dearborn, Michigan June 21, 2012. REUTERS/Rebecca Cook

Rolled steel is seen after being treated on the pickle line at the Severstal steel mill in Dearborn, Michigan June 21, 2012.

Credit: Reuters/Rebecca Cook

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NEW YORK (Reuters) - U.S. manufacturing ended its worst quarter in three years in September as foreign demand for U.S. goods fell sharply, an industry survey showed on Monday.

The final Markit U.S. Manufacturing Purchasing Managers Index fell to 51.1 in September from 51.5 in August, and averaged 51.4 in the third quarter. Both the monthly and quarterly readings were the lowest in three years.

A reading above 50 indicates expansion.

The index's reading for the manufacturing sector's output fell to 50.6 from 51.9, also a three year low, while employment slipped to 51.9, the lowest reading since 51.1 in December of 2010.

Indicators suggest manufacturing production and employment could be on the verge of contracting, "meaning that the sector is now likely to be acting as a drag on the wider economy," said Chris Williamson, Markit chief economist.

The U.S. economy grew at a 1.3 percent pace between April and June, but Williamson said manufacturing weakness could contribute to an even slower rate in the third quarter.

As indicated in Markit's preliminary reading last month, manufacturers were hurt by weaker demand overseas, with new orders for exports slipping at their fastest rate in 11 months.

(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)

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Comments (2)
Harry079 wrote:
With job losses and austerity programs being dropped on the masses across the euro-zone the demand for imports will keep dropping and dropping.

People have no money to spend on anything besides the basics and many of them can’t even afford that.

The protests and riots are only going to get worse.

Oct 01, 2012 9:32am EDT  --  Report as abuse
dareconomics wrote:
Old paradigms die hard. The United States became an economic powerhouse riding the wave of an industrialization boom that started in the early 19th Century not ending until the 60′s. Manufacturing is still seen as the major bellwether of the American economy, but it just is not as important as it used to be.

This is the composition of US GDP according to Wikipedia:

Agriculture: 1.1%
Manufacturing (Industrial): 22.1%
Services: 76.8%

Here is China’s for comparision:

Agriculture: 10.2%
Manufacturing (Industrial): 46.9%
Services: 43%

These numbers tell us a few things. The rich countries all have low levels of agriculture as part of their economies. The largest agricultural producer is China. Most of this production is used to feed itself, often through inefficient subsistence farming. It takes 10.2% of Chinese GDP to do this.

The United States feeds itself using a mere 1.2% of its GDP plus imports from other efficient producers adding only a few tenths of a point to this total.

In gross terms, China’s industrial output is 50% greater than that of the United States, but remember that China has five times as many people. The US specializes in high value added goods like 747s, while these industries are in their infancy in China.

What makes the United States a rich country and China an aspiring rich country is the service industry. Think of all the high wage earners you know. They’re all doctors, lawyers, accountants and other professionals. These are all services.

Over time, a more efficient and productive agricultural and industrial sectors leads to a larger services sector where there is a lot of money to be made. Apple pays much more to its Silicon Valley workforce to design the iPhone than it does to have it built in China.

During this period of muted economic growth we certainly do not want manufacturing employment to decline, but it is not as big a deal as the newspapers make it out to be.

dareconomics.wordpress.com

Oct 01, 2012 11:17am EDT  --  Report as abuse
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