Behind the Growth: Manufacturing Lags

Photograph by Scott Eells/Bloomberg

A welder welding the frame of a modular housing unit at the Brooklyn Navy Yard in the Brooklyn borough of New York.

The lower-than-expected reading this morning for U.S. economic growth in the first quarter has revealed a few victims even as growth picked up — among them, factories.


“Manufacturing activity remains weak relative to the larger economy,” in part due to federal budget cuts and tax increases, Chad Moutray, chief economist at the National Association of Manufacturers, said in a statement after the GDP release. “We need to get back to a position where the manufacturing sector is once again making significant contributions to output and employment. This means that we need higher GDP growth to get back on track.”


The U.S. economy grew less than forecast in the first quarter as a drop in defense outlays undercut the biggest increase in consumer spending in two years. Business investment also slowed. GDP rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, according to the Commerce Department data.


The GDP figures cap a week of slumping production data, including readings from the Kansas City and Richmond Federal Reserve banks showing contraction in those regions. The Markit Economics preliminary index of U.S. manufacturing fell to 52 in April from a final reading of 54.6 a month earlier, the London-based group said earlier this week.


Disappointing April production figures from the Euro zone, Germany and China are also weighing on the U.S., Scott Anderson, chief economist at Bank of the West in San Francisco, said in a research note.


“The data suggest the U.S. economy is participating in a synchronized global manufacturing slowdown,” Anderson said.


Next week will bring results from the Dallas Federal Reserve, Chicago’s business barometer and the Institute for Supply Management’s manufacturing survey. This will confirm if things are indeed turning for the worse.


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