By Austen Hufford and Patrick McGroarty
Factories have shifted into low gear after a year of record
output and big job gains, putting additional pressure on a U.S.
economy that already is expected to grow more slowly this year.
American consumers and companies are buying fewer cars, trucks
and tractors and building fewer houses. That, in turn, is weighing
on demand for wheels and steel parts, washing machines and
Deere & Co., General Motors Co., 3M Co. and other companies
that make those goods are cutting output, slowing hiring or cutting
jobs as a result. That means manufacturers, which contributed more
than any other industry to the U.S. economy's 2.9% expansion last
year, could become a drag on growth. Many economists expect U.S.
gross-domestic-product growth to drop to 2.5% or lower this
Navistar International Corp. executives said the company's
biggest customers are replacing only their oldest vehicles this
year, instead of expanding their fleets, after one of the busiest
years on record for the trucking industry in 2018.
"The U.S. economy is showing signs of slowing but remains very
healthy," Troy Clarke, chief executive at the truck maker, told
analysts on Tuesday.
Manufacturers in the U.S. in 2018 had their best year since the
recession. Industrial production was higher than ever, and
manufacturers rapidly boosted employment to nearly 13 million
across the sector, helping pull the national unemployment rate to
the lowest level in decades.
Now the diminished vigor of U.S. manufacturers is posing a new
threat to a U.S. expansion that this month is ending its 10th year.
Manufacturers added just 3,000 jobs in May, the Labor Department
said Friday, continuing a stretch of lackluster hiring this year.
Factory output fell in the first four months of 2019. IHS Markit's
index of sentiment among purchasing managers fell in May to the
lowest level since September 2009.
"Growth has slowed very sharply," said Chris Williamson, IHS
Markit's chief business economist. "Companies are more reticent to
spend, both on hiring staff and on business equipment."
Other sectors of the economy, such as health care and
information technology, have continued to grow at vigorous rates
this year. Manufacturing accounts for just 11% of GDP, according to
the Bureau of Economic Analysis. And many manufacturers say that
business remains strong even if the robust demand they saw last
year has cooled somewhat.
"When you go from 85 miles an hour to 75, you're still
speeding," said Barry Zekelman, chief executive of Zekelman
Industries Inc. The Chicago-based manufacturer is on track to ship
about $2.8 billion worth of steel pipes and tubes this year, he
said, flat in dollar terms from last year and up about 6% by
But manufacturers' sales are pointing to weak spots in both the
health of the global economy and domestic demand. Global growth is
slowing to the slowest pace since 2016, the World Bank said last
week. Discretionary spending on goods including motorcycles and
furniture has fallen.
"Do I need to buy that extra piece of machinery or equipment or
expand a warehouse? Maybe not. Maybe I'll wait and see a little
bit," Bruce Van Saun, chief executive of Citizens Financial Group
Inc., said at a conference on May 30.
New challenges are looming at home and abroad. The Trump
administration's trade fights with China and other major trading
partners are exacerbating the impact of that slowdown for some
manufacturers. Meanwhile, the strength of the dollar relative to
many other currencies also is making some U.S. products less
"We're in a fight for survival," said Brian O'Shaughnessy,
chairman of Revere Copper Products Inc., which has cut the
workforce at its copper mill in Rome, N.Y., to 320 from 600 in 1990
in part because the strength of the dollar has pushed production
costs in the U.S. far above those of competitors abroad, Mr.
Domestic demand is also softening.
Building construction -- a generator of demand for appliances,
light fixtures and paint -- fell 1.2% in April from a year earlier.
The number of permits issued to build new homes dropped 5% that
month from a year ago.
That has meant less business for Whirlpool Corp., which sold 7%
fewer washing machines in North America in the first quarter than a
year earlier. Paint maker PPG Industries Inc. said demand at its
stores in the U.S. and Canada was weak for much of the quarter,
too. Masco Corp. said lower demand for paints, windows and plumbing
products cut sales revenue in North America by 6% in the
Michael Burdis, chief executive of James L. Taylor Manufacturing
Co. in New York's Hudson Valley, said demand for his company's
wood-working machines has leveled off along with sales of the
cabinets and flooring that his customers make.
"Their orders have sort of plateaued like ours have," he said.
He said orders could increase next year if the housing-construction
market gets stronger.
Vehicle makers that buy everything from engines to coatings from
other U.S. manufacturers are also ratcheting back demand.
Tariffs aren't always to blame. Boeing Co. slowed production of
its best-selling 737 in April after the MAX version of the aircraft
was grounded following two fatal crashes. New orders for
nonmilitary aircraft and their parts fell more than 50% in April
from a year before.
And farmers, facing challenges including record wet weather in
addition to trade tensions that have pushed down crop prices, are
buying fewer tractors. Deere in May cut machinery production by 20%
for the remainder of its fiscal year.
"Farmers have been hesitant, a little reluctant to buy
equipment," Andrew Beck, financial chief at farm-equipment maker
AGCO Corp., told investors Wednesday.
That, in turn, is hurting sales of tires, steel tubing and other
components that Deere and AGCO buy.
Bill Hickey, a third-generation executive at Lapham-Hickey Steel
Corp., a Chicago-based processor and distributor of steel sheet and
tubing, said, "We've started to see a slackening of orders."
Navistar said backlog from last year's record-high orders means
that trucks purchased today won't be delivered until 2020,
encouraging some buyers to postpone purchases until they are more
confident the U.S. economy will continue to grow.
"It does provide the opportunity for some customers to say,
'Hey, let's take a wait and see,'" Mr. Clarke said.
Write to Austen Hufford at email@example.com and Patrick
McGroarty at firstname.lastname@example.org
(END) Dow Jones Newswires
June 09, 2019 16:35 ET (20:35 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Historical Stock Chart
From Jul 2020 to Aug 2020
Historical Stock Chart
From Aug 2019 to Aug 2020