By Cara Eisenpress
In spite of a pickup in production and orders, the recession still haunts American manufacturing in the form of shrinking exports.
Overall, American manufacturing grew faster in March than it did in February, according to a survey by the Institute for Supply Management. The Purchaser Manager Index climbed to 53.4, one point above where it stood in February but still below its January level. Any number above 50 indicates that the economy is growing.
Contrary to signs of increased demand, export growth dropped a hefty 5.5 percentage points and is now slightly worse than the export average for the last twenty years.
“Weakness from economies overseas is beginning to nag at the American economy,” said Robert Brusca, chief economist at FAO Economics.
Exports have formed a reliable source of growth in our economy. With so many Americans unemployed even in the recovery, national demand just hasn’t inflated enough to ensure continuing growth in production here.
Instead, manufacturers have relied on orders from abroad to sustain the sector. But the debt crisis in Europe, coupled with austerity there, translates into slowing demand from abroad as well.
Tomorrow’s jobs numbers will help explain what we can expect from domestic demand in the coming months; if Americans get back to work, upping consuming spending, manufacturers may not need to prioritize exports as a prime source of business.
The slowing of exports does hurt, said Alalen Sinai, chief global economist at Decision Economics. “But at the moment it’s being offset by consumer spending here at home,” he said.
Even now, the drop in exports does not signal a giant backslide for the economy, just a more sluggish increase in what we export.
“Europe’s in recession, but it’s not getting worse,” said Bill Adams, senior international economist at PNC Bank. The emerging markets, from China and India to Mexico and Brazil all have leading indicators pointing towards growth, he said.
And the drop in exports even contributes a bright side to predictions about American manufacturing. The slowdown in Europe can help lower the prices businesses have to pay for materials. The survey’s prices index, at 61, represents “an environment of increased inflationary pressure,” said Tim Quinlan, an economist at Wells Fargo. A further drop in that index would free manufacturing companies from inflation or the specter of inflation. In turn, that would take pressure off exports, allowing them to settle into steady growth.
“We’re getting stung a bit,” said Brusca. But a sting is not enough to seriously harm the economy or bolster a case that the recovery will slacken in the coming months.