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Financial Management Review

In: Business and Management

Submitted By Dr4057
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Is U.S. manufacturing signaling a recession?
By Heather Long @byHeatherLong

America's manufacturing sector is losing its spark.
Demand has cooled as the global economy slows down, especially in China.
What happens in manufacturing is often seen as a leading indicator of U.S. recessions. It's an alarming sign when it starts to look queasy.
On Monday, the ISM Manufacturing Index -- the official thermometer of the U.S. manufacturing sector since 1915 -- declined for a fourth straight month.
It came in with a reading of 50.1. That's just above the red flag zone. Anything below 50 would signal a manufacturing contraction.
The hit to manufacturing is due to three reasons:
1. The dramatic plunge in oil prices
2. The sluggish global economy
3. The strong U.S. dollar
None of those factors is likely to change soon.
Oil and gas prices are expected to stay low as the world remains flooded with oil. Similarly, the U.S. dollar will probably remain strong, making American goods more expensive relative to European and Asian products.
Now there's concern about what this could mean for jobs. Manufacturing had been making a solid recovery from the Great Recession. Over 850,000 jobs came back. Those gains could be in trouble if the sector officially starts shrinking.

Related: U.S. economy only grows 1.5% as global slowdown hits
Not as bad for the U.S. economy as it looks
Still, some experts say it's too early to get concerned.
The reality is that manufacturing plays a much smaller role in the U.S. economy today than it did in the past.
In the 1950s, manufacturing accounted for 27% of the economy. Today, it's only 12%, notes Wells Fargo.
The overwhelming driver of the U.S. economy now is the service sector.
"Heading into 2016, we believe continued strength in the service sector can more than offset weakness in the manufacturing sector," says Chris Haverland, global strategist at Wells Fargo.
Haverland also points out that manufacturing has been on a tear in recent years. It's not unusual for a little slowdown. That's exactly what happened in November 2012 when the ISM Index dipped below 50 for one month only. It turned out to be a blip.
Holding the U.S. economy back from its full potential
The manufacturing slowdown probably doesn't signal a recession is near, but the headwinds impacting manufacturing are holding the economy back from reaching its full potential.
America used to grow at more than 3% a year, on average. Since the recession, it's been struggling to grow much above 2%. Some have taken to saying the U.S. is stuck in a "Twilight Zone" between boom and bust.
While manufacturing is stalling, it's unlikely to be the factor that sways the Federal Reserve on whether or not the U.S. economy is healthy enough for the central bank to raise interest rates in December.
All eyes now turn to Friday's report on how many jobs the economy added in October as the big clue to how the U.S. is holding up.
Related: America's economy is in the Twilight Zone
Related: Is it up or down? America is a tale of 2 economies

Magazine review

In the topic they talk about the US manufacturing and how it has declined since the 40 and how it has more employees overall but the industry its self is still at a recession level. It said in the 50”S that manufacturing was 27% of the total economy and now it is only 12% it has decreased to half of what it used to be. I believe that we are switching to more of a business economy of selling goods and services that other countries are making and maybe even transportation of goods because not many of our products don’t come from china, and even things that are made in the US use Chinese or foreign parts to make US goods. I do think they are right it is hurting our economy from reaching its full potential because if we were to make all of our own products and sell them we would get a larger percentage of the pie but instead we take a smaller piece by outsourcing to foreign countries. Because it would cost more to start manufacturing in those areas than it is to outsource. I don’t think our economy is going to go back into a recession for the time being but there has to be some action taken because we are hemorrhaging out in debt and if we don’t stop the bleeding soon either the sharks come or we die. I think we have opportunity’s to save our economy it’s not going to be easy. Were probably going to have to raise taxes and we will need something to make the US more profitable. When someone new comes into office next year, how much will this change the financials of the US economy if they cut back in a lot of these areas then what could happen. Especially if someone gets elected who is not suited for the job. But all in all I believe that what we are shooting for now is fine, the article makes you worry because we are defiantly on a teeter totter which is very unstable and you never know who else is going to emerge into the market and what they will bring to the table anything is possible look how Rome did for so many years and then it fell it just goes to show we have some things to work on in our economy and hopefully we get something done before it gets bad. #GO Royals…...

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