1. Which US manufacturers are benefiting from recent trends in the economic envi
ID: 459974 • Letter: 1
Question
1. Which US manufacturers are benefiting from recent trends in the economic environment and which are facing difficulties? Explain why. 2. How do you think the current political climate in the US is affecting US manufacturers? Full text: The fortunes of U.S. manufacturers are increasingly divided between those looking outward and those looking inward. Global industrial giants are struggling under the weight of a strong dollar, reeling commodity markets and weak demand in emerging and advanced economies alike, from Brazil to Europe to China. But domestically oriented U.S. manufacturers are faring better, with steadier business buoyed by the relatively brighter auto, housing and job markets. The split conditions, seen throughout the latest corporate earnings reports and gauges of U.S. factory activity, reflect broader tensions plaguing the global economy. While the world's largest economy -- the U.S. -- is struggling to accelerate, it is performing better than many of its counterparts struggling just to stay above water. "Domestic demand is what has been supporting the manufacturing sector overall and preventing a sharper downturn," said Gregory Daco, chief U.S. economist at Oxford Economics. "Domestic-oriented sectors are faring relatively well." At Nation Ford Chemical Co. in South Carolina, about 20 miles outside of Charlotte, N.C., president Jay Dickson is having a hard time finding enough workers to keep up with brisk business. "The American consumer is driving all of this demand," he said. Nation Ford conducts most of its business in the U.S., where the "American consumer has been slowly recovering from the recession," Mr. Dickson said, demonstrating "pent-up demand" for new homes and autos that is spurring business down the supply chain for his company's products such as paint chemicals. At Caterpillar Inc., on the other hand, some gears are stuck. More than half its overall revenue is generated overseas, where demand is waning. The Peoria, Ill., behemoth, which moved last month to shut more plants and cut more jobs, says adverse currency effects and sluggish global commodity markets helped pull sales down by more than a quarter in the first three months of the year from the same period of 2015, prompting the company to downgrade its revenue forecast for 2016. "It's a very, very slow crawl out," Caterpillar chief executive Douglas Oberhelman said recently, noting it is too early to declare a bottom in China, while also emphasizing weakness across Latin America. In the U.S., meanwhile, "just about any market that's away from oil is doing pretty good," he said. Recent manufacturing gauges illustrate the brighter U.S. picture. A national manufacturing index from the Institute for Supply Management, a trade group for purchasing managers, showed activity continued to expand in April after breaking a five-month streak of contraction in March. Competing data provider Markit said factory activity continued to expand last month. Industrial production -- a Federal Reserve measure of everything made by factories, utilities and mines -- surged in April. That came as conditions across China's manufacturing sector deteriorated, activity in France slid at the fastest rate in a year and factories across Brazil cut jobs at a record pace. Many global industrial giants are reporting difficulties in business abroad. Honeywell International Inc. said it took a steeper-than-expected hit to first-quarter profits due to a stronger U.S. dollar, and Chief Executive David Cote said the company isn't counting on a global economic rebound. Engine maker Cummins Inc. saw weakness in Latin America and Asia drag international sales down 8%. United Technologies Corp., which manufactures products from elevators to air conditioners, said lower orders across China, Europe and the Middle East offset improvement in the U.S. 3M Co., which manufactures items from furnace filters to Post-it Notes, said sluggish demand from key overseas markets would slow sales growth through 2020. Like many others seeking to support profitability in the face of weaker international sales, 3M is focusing on cost reductions, including job cuts. To be sure, a break in the dollar's ascent in recent months and the latest jump in oil prices have offered exporters some relief, though the relief could be short-lived, with renewed worries about a Federal Reserve rate increase. Signs of stabilization in the Chinese economy also helped. While those forces are less intense than in earlier months, "they have in no way reversed," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Even while the dollar eased last month, U.S. factories said demand from abroad dropped at the fastest clip in about a year and a half, according to Markit. That was further evidence that U.S. customers are powering the modest uptick in manufacturing activity. The resilience in domestic buying has been particularly concentrated in areas connected to the auto and housing markets, from items to furnish new homes, to paint and parts used by car makers. Economists credit steady job growth and wage growth in addition to still-low interest rates that make financing a new home or vehicle cheaper. American consumers have become more confident lately, sentiment that helped spur last month the best rate of consumer spending in over a year. One notable shift in recent months: Smaller manufacturers that are more domestic-facing by their nature have become more optimistic than their counterparts, according to Chad Moutray, chief economist at the National Association of Manufacturers. At Ecovative Design, which makes greener versions of wood and other materials, production is running 16 hours a day, seven days a week, to meet strong demand from large clients such as office-furniture maker Gunlocke Co. and computer giant Dell Inc. All customers of the Green Island, N.Y., firm are domestic, something co-founder Gavin McIntyre said has been a boon for his business. "We're seeing a refocus on domestic manufacturing," he said, noting companies aren't waiting for supplies from foreign manufacturers. "Companies are adding personnel," he said, and those workers need equipment. His firm also is having a tough time finding skilled workers to fill open positions as it ramps up production. The improving health of U.S. factories has been met with a sigh of relief -- albeit a tentative one -- as the latest lurch lower in manufacturing had sparked worries about the U.S. economy creeping back into recession. "Selling stuff to the U.S. consumer is quite a decent place to be at the moment," said Mr. Shepherdson of Pantheon Macroeconomics.
Explanation / Answer
1. The US manufacturers who are operating globally are facing difficulties with the recent economic trends leading to strong dollar value, weak commodity markets, and weak demand in emerging and advanced economies around the world. On the other hand, the manufacturers who are dealing in domestic US market are benefiting form the stronger US dollar value, and with better auto, housing and job markets within US. Because stronger dollar implies, imports will become cheaper, as the currencies of the other countries are weaker when compared to US, and the companies selling within the US market are earning good, due to stronger dollar, and also because the American consumers are positively driving the demand within the US market, as they are on a recovering trend from the recession, and hence there is increasing demand of real estate and automobiles, which in turn is helping all the players involved in the supply chain of these products. Whereas for global players, the other countries are still not out of the effects of recession, hence the demands in these markets is low and causing problems for global manufacturing players of US.
2.
The political climate in the US is affecting the US manufacturers as the demand driven by Americans is due to their sound job and income growth and low interest rates, enabling them to get a cheaper financing on their homes and automobiles. US’s political stability and positive policies have helped the country to crawl back out from recession and its effects far more early than it’s merging and advance economy counterparts, which has enabled the country to provide this continuous growth in job market and growth in wages across the country. Hence the US political climate has helped the US manufacturers, who are targeting the American markets.
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