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Is The Manufacturing Sector in the U.S. in a Technical Recession?

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Is The Manufacturing Sector in the U.S. in a Technical Recession?

June 16 2015, 07.38am GMT


The Annual Revision notice of industrial production released by the Federal Reserve revealed that factory production dropped by 0.2% during May, this after falling 0.5% in April.

The industrial production index with a 2007 base of 100, revealed a December 2014 figure of 106.3, dropping steadily to an index figure of 105.1 at the end of May.

The index was showing a growth of 4.8% on the previous twelve months at end November 2014, but this had dropped to 1.4% by end May 2015. This bears out the shrinkage of economic activity in the sector over the past six months.

Technical recession conditions are defined as no growth for two successive quarters and based on that definition, the manufacturing sector in the U.S. can be said to be in a technical recession according to Alan Tonelson, a manufacturing sector commentator.

The release by the Fed of these disappointing figures saw stocks moving sharply lower. This was reflected by the S&P 500 index (SPX, -0.46%) moving down by 19 points to 2075, a fall of almost 1%.

The stronger dollar (USD) coupled with lower oil prices are placing severe growth restrictions by acting as headwinds which must be fought by the U.S. economy, according to Jennifer Lee, senior economist at BMO Capital Markets.

The dangers facing the U.S. economy are certain to be at the forefront as the Fed policymakers meet on Tuesday and Wednesday to set the monetary policy for the next six weeks. No rate hike is expected to result from this meeting as U.S. central bankers are constrained by having to wait for indications that the economy is strong enough to cope with a rates hike.

The one bright spot on the horizon was the 1.7% growth in the auto industry, and if this figure is excluded, manufacturing was down by 0.3%.

Mining output also showed a decline of 0.3% following decreases of an average of 1% per month for the past four months.

Adding to the woes, the Empire State manufacturing survey, in a projection of the June figures, also released on Monday, forecast a further contraction of five points to a negative reading of 2.00, the Federal Reserve Bank said.

This is the second negative reading for the index in the past three months. Added to this, the further decline forecast for June will see the lowest level the manufacturing sector has experienced since January 2013.



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