US Manufacturing Shows Resilience Despite Rising Interest Rates –

US Manufacturing Shows Resilience Despite Rising Interest Rates

While many observers are concerned that rising interest rates and tighter financial conditions will slow US manufacturing, recent reports show that the sector has remained resilient. While orders for capital goods rose by 1.1% in May, there were signs of a slowdown in the housing market. For example, orders for toasters and aircraft were down in May, compared to April’s 0.8% gain. The increase in shipments of durable goods was due in part to higher prices.

The latest manufacturing PMI report shows that the US economy expanded at a modest pace in June, despite high interest rates. Meanwhile, the PMI for the services sector fell to 51.6, its lowest level since May. While the headline figure suggests modest growth, the sub-index for output slowed dramatically, at the slowest rate since the survey began. The decline in new orders and exports was the fastest since June 2008, which only exceeded the pace of the recession.

The US dollar rose against a basket of currencies, while core capital goods shipments rose 0.8% in May. Core capital goods shipments are used to calculate equipment spending in gross domestic product measurement. However, ERISA cannot prevent states from enforcing criminal laws governing the payment of health care benefits. Thus, employers who reimburse their employees may be subject to criminal charges. Further, the US dollar may be vulnerable to further increases in interest rates.

Although US manufacturing continues to show resilience despite rising interest rates, rising energy prices are hampering the growth of services. This means that there is a risk of a recession this year. But while there is no clear evidence of an imminent recession, the recent rebound has already been accompanied by signs of lower output and reduced exports. The underlying reason for the resilience in the service sector is the high level of employment. This coupled with high levels of investment spending means that households are still comfortable with spending.

The US manufacturing sector showed signs of improvement in June, joining the service sector’s healthy recovery. For the third consecutive month, service providers reported expansion in business activity. These back-to-back expansions were the strongest in the survey’s history. Further, firms continue to protect their margins by raising their output. However, rising interest rates can cause backlogs of work and a decline in demand.

The latest data also shows that the US manufacturing sector remains resilient despite rising interest rates, indicating that the economy is on track to meet its two-year growth target. The Federal Reserve will likely raise its benchmark interest rate to 3.4% by the end of the year. However, it will take two quarters of negative growth for the economy to enter a recession. This means that the Fed will be forced to raise rates more quickly than previously forecasted.

Chinese imports have slowed, with US retailers’ orders declining. However, the latest data suggest that demand for Chinese products is continuing to fall in the US, which should support US manufacturing. Meanwhile, the cost of shipping containers from China to the west coast of the US is decreasing. This is further evidence that US retailers are not losing their customers. Further, the weak tenge will reduce the price of imported goods to the US.

About the Author: Allison Kraus

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