Manufacturing in the US hit by oil price collapse

Chris Papadopoullos
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Firms that produce capital goods are still feeling the bite of cheap oil (Source: Getty)
Orders of US long-lasting manufactured goods dropped two per cent in August, with firms that produce capital goods still feeling the bite of cheap oil and a strong dollar.

The fall was mainly due to a dip in the volatile transport category, the US commerce department said yesterday. However, underlying trends that exclude volatile goods have also been weak this year due to cheap oil denting investment by energy firms.

The orders of non-defence capital goods excluding aircraft – which is used as indicator of business investment – dropped 0.2 per cent in August from July. However, it followed strong gains over June and July.

“The underlying orders data over the last three months have shown some improvement relative to the trend over the last year, although given the volatility of the data, three months is likely too short a period to draw definitive conclusions on a pickup in manufacturing growth,” said economist John Ryding from RDQ economics.

“Nonetheless, the August data were a little better than we feared and the capital goods data are pointing to a pickup in business equipment spending in the third quarter.”

Orders for durable goods have suffered this year as energy firms cut back on investment and bought less machinery. The strong dollar has also hindered manufacturers.

Data released yesterday by the Federal Reserve Bank of Kansas City showed manufacturing activity in its district declining again this month.

“Survey respondents continued to blame a strong dollar and weak energy activity for declining factory activity”, said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City. “This month their future outlook also weakened after holding steady in recent months.”

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