America’s manufacturing sector is losing its spark.
Demand has cooled along with the slowdown in the global economy and the strong U.S. dollar is making American goods more expensive relative to European and Asian products.
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 — fell for a fourth straight month and came in with a reading of 50.1.
That’s just above the red flag zone. Anything below 50 would signal a manufacturing contraction.
Manufacturing was making a solid recovery after the Great Recession — even adding back over 800,000 jobs — but those gains could be in trouble if the sector officially starts shrinking.
The dramatic plunge in oil prices has also been a drag on the manufacturing sector. Prices look unlikely to go back up any time soon.
Still, some experts say it’s too early to get concerned.
The reality is 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.
“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.
