WEAK US INDUSTRY
With the US oil industry sinking and a strong dollar affecting overseas sales, Goldens' Foundry and Machine Co is targeting a market it has not tapped into since World War Two: the domestic consumer.
The Georgia-based company, which has been operating since 1882, in November began selling high-spec cast-iron barbecues to American grillers, a sharp departure for a company that for decades has specialised in casting and machining parts for heavy-duty trucks and industrial pumps.
"The biggest headwind we have had is oil and mining being down," says George Boyd Jr, Goldens' vice-president, while the strong dollar has "taken some of the wind out of the reshoring initiatives we have been hearing about".
Goldens' is not alone among US manufacturers in being buffeted by the gyrations in commodity and currency markets. Even as officials from President Obama on down tout the US economy's recovery and the Federal Reserve sets about normalising monetary policy the evidence is growing that America's industrial economy is struggling and may even be falling into recession.
Industrial production numbers on Friday are expected to be the latest to confirm that trend. They will follow manufacturing data from the Institute of Supply Management that last week showed the sector contracting for the second month in a row for the first time since the 2009 recession.
A survey from the Federal Reserve on Wednesday showed that, with the exception of cars and aerospace, most parts of manufacturing in the US have seen weakening activity — with the strong dollar cited as the major challenge, as well as falling energy prices.
The slowdown has been rapid. As recently as a year ago, US manufacturing production was growing at an annual rate of 4.5 per cent, says Chad Moutray, chief economist for the National Association of Manufacturers. By November that had slowed to 0.9 per cent and this year Mr Moutray expects production to grow just 1.4 per cent.
At least part of the reason for the hit this year is likely to come from a turn in Chinese policy and the market turmoil that has been in evidence there in recent weeks. The decision by Beijing last August to allow the markets a greater role in determining the value of its currency yielded a sharp fall in the renminbi in recent months. But that has come on the back of far sharper swings against the currencies of other trading partners and amid weak global demand. On a trade-weighted basis, the US dollar has risen almost 22 per cent since July 2014.
"The events in China over the past week haven't helped but even before that we were seeing the global economy be one of the major challenges to growth with China being front and centre," Mr Moutray says.
The industrial slowdown has led some economists to reduce their expectations for growth in the final quarter of last year. The Atlanta Federal Reserve's "GDP Now" tracker suggests that output grew by 0.8 per cent in the final three months of 2015, down from 2 per cent in the third quarter, and some forecasters are predicting an even lower figure when the first reading is released on January 29.
It is also having an impact on hiring. In Wednesday's State of the Union address, Mr Obama pointed out that nearly 900,000 jobs had been added in manufacturing in six years. While that is true, hiring flattened out in 2015, meaning only 30,000 of those jobs were created in the course of the year.
The consensus at the same time is that the US economy should be able to weather that industrial slowdown with manufacturing accounting for only 12 per cent of gross domestic product and exports making up roughly the same portion.
The reality is that the health of the US economy depends more on American consumers than its manufacturers or demand in China. Moreover, it has continued to add jobs at a healthy pace and is now in the view of some economists nearing full employment with the jobless rate as low as 3 per cent in some states. While manufacturing hiring slowed in 2015, the service sector added 2.48m, while construction grew by 263,000.
That has fundamentally changed the politics of the dollar and currency events such as the recent depreciation of the renminbi. Opponents of a Pacific Rim trade pact still see currency manipulation as a major issue and complain about the sharp weakening of the yen in recent years and the benefits it has yielded for Japanese carmakers. But the voices of US currency angst are far more muted than they have been in the past.
Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, argues that is because of the US shift to full employment and the fact that even amid the recent Chinese swings the case for outrage has become more complicated. Chinese authorities are now if anything working to slow the depreciation of the renminbi, he points out, something which makes their actions harder to criticise for the US. People who lose jobs in export sectors also can more easily find employment elsewhere, he argues, something that was not true just a few years ago.
"Currency manipulation can be a job-stealer when times are toughest, and it distorts the US and world economies even when times are good," he wrote recently. "But we should not exaggerate its impact on the US economy right now."
Still, for Mary Andringa, chair of the board of Vermeer Corporation, a family-owned manufacturing company based in Pella, Iowa, the strong dollar's impact remains very real.
"The high dollar is the number one negative for manufacturers who export from the US," she says, with the currency disadvantage most apparent against the company's European competitors. Having peaked at over 35 per cent of sales in 2014, the company's exports have since dropped below 30 per cent of volumes, because of the dollar as well as weakness in emerging markets such as China and Brazil.
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IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.