Economists had initially predicted demand for long-lasting goods would rise in 2016, but in reality, it declined. The manufacturing sector had a largely mediocre year. However, toward the end of 2016, the manufacturing sector began to stabilize as more companies developed positive expectations for the new year with Donald Trump as president of the U.S.
They are expected to enjoy lower taxes, better infrastructure, and general support from the president who cares about goods being produced on American soil.
Orders for Durable Goods Declined, But the Manufacturing Industry Stabilized
Demand for long-lasting goods in the United States decreased in December 2016 because defense-related orders declined significantly. Products that are built to last more than three years are considered durable goods. Examples of durable goods include minivans and machinery.
Orders for durable goods dropped 0.4% from November to December, as recorded by the Commerce Department. The decrease came as a surprise. According to a survey conducted by The Wall Street Journal, economists predicted a 2.3% increase in orders for long-lasting goods.
Orders for defense capital goods declined by 33.4% in December 2016, which was the biggest reduction since May 2014. A sudden drop in orders for defense capital goods is not a huge surprise because it is a volatile category.
High volatility is an industry term meaning the price of the good fluctuates dramatically. If the defense industry is excluded, orders increased by 1.7% in December.
With the entire year of 2016 considered, durable goods orders dropped 0.3% from 2015. Although U.S. manufacturers didn’t have an outstanding year, the manufacturing sector increased in stability during the last month of 2016.
Excluding aircraft, non-defense capital goods orders increased by 0.8% in December 2016, which was the third monthly increase in a row. Overall, orders for non-defense capital good orders fell in 2016.
More Background on the Manufacturing Industry and Future Projections
According to Berenberg Capital Markets economist Mickey Levy
“Prospects for future activity look better than they have in some time.”
He also noted that unfulfilled orders are increasing
“pointing to the need for companies to increase activity for what seems to be better demand.”
Business investment growth was slower than economic growth in 2016. This indicates that companies were being cautious. However, investment growth increased in Q4 of 2016. Q4 is the fourth financial quarter in a year, meaning the months October to December. Some experts believe that this investment growth is a result of the presidential election tipping in Donald Trump’s favor.
Some experts believe that this investment growth is a result of the presidential election tipping in Donald Trump’s favor. Many business owners are optimistic because of President Donald Trump’s proposed tax code that cuts taxes for all Americans, including companies.
Only hedge funds won’t enjoy a tax break as per Trump’s tax code proposal. Manufacturing companies are also positive about their future in America because Trump has placed an importance on improving the country’s infrastructure.
The U.S. dollar has strengthened as well since Donald Trump was elected president. This is causing American-made goods to be more expensive for foreign buyers.
There are also plenty of tensions and conflicts surrounding America’s trade policy, adding a layer of uncertainty. Mexico has made it clear that it will retaliate if the U.S. imposes tariffs on their exports and starts building a wall between the two countries. This could cause Mexico and America to enter a trade war.
After a year of decline, the manufacturing sector in the United States showed signs of stabilizing in December 2016. With Donald Trump as the new president of the United States, some manufacturing companies are positive about their performance in 2017.
Two major reasons why they have a positive outlook are lower taxes for businesses and prioritization of improving America’s infrastructure. Trump has made it clear he cares about America making its goods in the country again, another good sign for manufacturers.
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