Manufacturing Rout as U.S. Factory Orders Weaken

Fewer buyers are interested in American-made goods even as factories find it more expensive to hire workers.

Factory goods saw declining demand, with new orders down 1% in September after falling 2.1% in August, according to the Commerce Department. That August decline is after a downward revision as analysts saw orders even weaker than previously estimated.

Fewer buyers are interested in American-made goods even as factories find it more expensive to hire workers.

Factory goods saw declining demand, with new orders down 1% in September after falling 2.1% in August, according to the Commerce Department. That August decline is after a downward revision as analysts saw orders even weaker than previously estimated.

The bulk of different types of goods saw declining demand, with cars, trucks, and other motor vehicles bucking the trend. Thanks to cheap credit and rising consumer confidence, auto sales were buoyant in September. In a separate report by TrueCar, a car shopping and comparison firm, sales in October rose 11.4% on a year-over-year basis for cars in America, driving demand for American and foreign vehicles alike.

The strong demand for cars remains largely limited to America, thanks to extremely low interest rates and rising confidence in the economy. According to Eric Lyman, TrueCar Vice President of Industry Insights, the auto industry is showing continued recovery throughout the year. “Interest rates are still low, which helps move vehicles off lots for consumers ready to buy. Automakers’ promotions also sweetened the deal as the model-year close-outs carried over from September,” he said.

Some firms, such as Ford and General Motors, are seeing stronger demand than European automakers, as controversy over smog cheating amongst Volkswagen and other European car manufacturers depresses demand for those companies’ products.

A Mighty Dollar

Despite the domestic demand for vehicles, global demand for American manufactured goods is falling. Export prices fell 0.7% in September according to the Bureau of Labor Statistics, and the trade deficit with foreign nations continues to increase.

America’s balance of trade has worsened throughout 2014 and 2015, rising by $17.6 billion year-to-date by August, a 5.2% increase on a year-over-year basis. Imports fell to $233.4 billion in August, and many analysts expect that number to fall further by the end of the year.

According to one report released by an investment bank earlier this month, the trade deficit is a result of a continually appreciating dollar making American exports significantly less competitive. At the same time, offsetting this is capital inflows from abroad into America, as demand for U.S. government debt remains relentless, which partly explains the increase in financial services exports from America to the rest of the world.

The report suggests that this will do little to stem the tide of weak manufacturing employment growth in the United States.  Weak unions, falling global demand, a continually appreciating dollar, lower entry barriers exporting manufacturing jobs to Asian countries thanks to the Trans Pacific Partnership agreement (TPP), and growing use of automation are conspiring to depress manufacturing jobs in America for the foreseeable future.

At the same time, the cost of employing factory workers is rising because of increased healthcare costs. Compensation costs have risen 1.9% year-over-year in the past year for all private industry sectors, with employer costs for health benefits rising 3% year-over-year.