US manufacturing activity slowed down in July amid the signs that a robust economy and import tariffs were dragging down on the supply chain, which could damage production in the long term.
A separate data on Wednesday showed that private employers ramped up hiring in July, indicating strength in the labor market and the overall economy at the beginning of the third quarter. The economy’s vibrancy was nodded at by the Federal Reserve, which tagged the activity as “rising at a strong rate.”
However, analysts expect economic momentum to slow because of capacity constraints at factories and easing brand demand.
“The rest of the year will be more challenging,” said Jennifer Lee, who is a senior economist at BMO Capital Markets in Toronto. “Businesses are already having a tough time with tight labor markets and finding qualified workers and they have to deal with higher costs and slowing demand from overseas.”
The Institute for Supply Management (ISM) stated that its index of national factory activity slipped to a reading of 58.1 last month from 60.2 in June. A reading over 50 suggests that there is expansion in manufacturing, which accounts for about 12 percent of the US economy.
The ISM described demand as remaining robust and noted “employment resources and supply chains continue to struggle.” It also stated that manufacturers were “overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business.”
US President Donald Trump’s “America First” trade policy has pitted the United States in tit-for-tat tariffs with key trade partners, which include China, Canada, Mexico, and even the European Union, which Trump claims are taking advantage of the United States.
Analysts have cautioned that import duties could disrupt supply chains, undercut business investment and halt economic growth. Even though the ISM’s supplier delivery sub-index dropped 6.1 points to 62.1 last month, the reading was still high after racing to a 14-year peak in June.
Economists believe that trade tensions and the robust economy, which is marked by labor shortages and strong domestic demand, are the reason for the delivery delays.
From food to machinery and primary metals industries, manufacturers all claimed that the workers were scarce. Machinery manufacturers claimed that many were falling behind schedule due to capacity constraints. Almost all industries complained that operations were being hit by tariffs, which others have said had raised prices for raw materials, which include steel and aluminum.
Manufacturers of electrical equipment, appliances, and components stated price increases “are real and will affect costs beginning in the third quarter of 2018.” Others have reported stocking up before the tariffs came into effect, resulting to an inventory buildup.
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Categories: Economic Indicators