If you're watching the news and following the markets, you're likely getting mixed signals: some outlets report we're in the best of times, others that we've fallen into the worst of the depression. The truth lies somewhere in between, and at the heart of the opportunity -- and challenge -- is the industrial and manufacturing sector.
Following instability in the last few months, some entrepreneurs have been observing the Federal Reserve to track changes in interest rates and stimulus spending. In researching the areas most under pressure in the environment of uncertainty, we discovered that global factories are struggling after a faltering attempt by China and Europe to stimulate the industry financially. Critics may argue that manufacturing is not a key economic factor. However, manufacturing does have a significant impact on the global economy, especially in quickly developing nations, and a lot can be inferred from the report -- among the lessons are doubts around whether or not the US will raise interest rates this years, which I argued against in an earlier piece due to its impact on buyer habits and increased challenge to those seeking loans.
The Manufacturing Industry at Work - Barely
According to Reuters, a survey on the manufacturing industry reports that October was a less than stellar month. Activity in China’s massive factory sector shrank and global demand decreased. Even more disturbing is the fact that Euro zone factories have resorted to price slashing to increase trade.
Daily Finance reports that U.S. manufacturing activity in October hit a 2 ½ year low. A rise in new orders offered encouragement to a sector that has been hit greatly by a strong dollar and persistent spending cuts by energy companies. The manufacturing sector only accounts for 12% of the economy but I think it is a number that we should still pay attention to.
The Institute for Supply Management states that the national manufacturing index dropped to 50.1 this month. This is the lowest since May 2013.
What exactly does this mean? The index is hardly hanging above the 50 mark, which is the dividing line between contraction and expansion. Clearly, manufacturing is an economic indicator that cannot be downplayed. This data suggests that the slump in the manufacturing industry may be close to ending. However, conditions will remain challenging as the industry experiences the impact of the stronger dollar. Seven manufacturing industries reported growth. Nine manufacturing industries reported contraction and this will likely continue into 2016.
Construction on the Upswing
One industry that has fared well in 2015 is the construction industry. Construction spending advanced .6 percent. This increase is the largest since March 2008. Construction spending has increased every month this year. This industry has seen tremendous turn around and will continue to improve.
Pay close attention to the manufacturing industry and its index. This data is a key economic driver. In addition, excessive contraction of this industry can have global implications. This does impact the health of the global economy. As a twenty-first century entrepreneur you need a macro and micro view of the economy. Everything may not directly impact your business; however, key data will drive the decisions you make in your business.