World Economy

America Posts $74b Manufacturing Trade Deficit

America Posts $74b Manufacturing Trade DeficitAmerica Posts $74b Manufacturing Trade Deficit

The United States manufacturing trade deficit reached a record high of $74.7 billion in September, according to the United States Census Bureau. After analyzing the September report, economist Alan Tonelson said the US appears headed for an annual record deficit in manufacturing.

September and October left economists stumped on the exact direction the United States is moving. “I have no idea how the United States economy is doing,” said an analyst at the New York Times. “The closer I look at the data, the more contradictory it looks.” In fact, as the manufacturing trade deficit increased, the total trade deficit for the month actually decreased. The lowest price for oil imports in a decade helped total imports drop by 1.82%, The Trumpet reported.

Other indicators may be hazy, but trade in manufacturing is looking clear cut. The September deficit was the largest in history, but the second largest was recorded only two months prior in July. Bloomberg noted that while the overall employment of the United States is up 3% since the start of the 2007 recession, manufacturing employment is down 10%.

Some economists, such as Matthew Yglesias, argue that America’s manufacturing decline is overstated, since overall industrial production is still increasing. (This may be misleading, as the definition of manufacturing has been expanded over the years.) Yet according to figures from the Economic Policy Institute, manufacturing output as a share of national gross domestic product had decreased from 45% to 35% between the years 1997-2013.

For a nation to be sustainable during times of crisis, manufacturing cannot continue to dwindle.

 Signaling a Recession?

America’s manufacturing sector is losing its spark. Demand has cooled as the global economy slows down, especially in China, CNN Money reported.

What happens in manufacturing is often seen as a leading indicator of US recessions. It’s an alarming sign when it starts to look queasy.

On Monday, the ISM Manufacturing Index–the official thermometer of the US 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 US 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 US 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.