Plus: Manufacturers Voice Mounting Economic Pessimism, Jobless Claims Swing Up and Re-shoring Becomes a More Popular Option.

U.S. Trade Gap Widens

The United States trade deficit expanded to $42 billion in July, a 0.2 percent increase over the revised $41.9 billion total in June, largely due to declining exports to foreign markets, particularly in the European Union, according to the U.S. Department of Commerce. July exports fell 1 percent to $183.3 billion, while imports dropped 0.8 percent to $225.3 billion.

The goods deficit for the month shrank to $57.3 billion, a $0.2 billion decrease from June, while the services surplus edged down by $0.3 billion to $15.3 billion. Goods exports declined by $1.9 billion, led by dropping demand for industrial supplies and materials and automotive vehicles and parts. Goods imports fell by $2.1 billion to $188.1 billion, with the steepest losses in industrial supplies and materials and capital goods. Meanwhile, services exports remained unchanged at $52.5 billion and services imports rose by $0.3 billion to $37.2 billion.

“A stagnant Europe and cooling emerging markets may further limit shipments from America’s shores, removing a source of strength for the three-year expansion,” Bloomberg News notes. “The figures coincide with a recent deceleration in U.S. manufacturing and indicate the economy will rely on consumer spending, business investment and housing to pick up the slack.”

The fiscal crisis in Europe led to an 11.7 percent drop in exports of U.S. goods to the E.U in July. The region accounts for roughly one-fifth of all U.S. exports. Demand also dropped in other major economies, with exports to Brazil falling 4.4 percent and exports to India decreasing 1.2 percent.

“The U.S. exported 0.4 percent more goods to China, the world’s second largest economy. But the deficit with China grew 7.2 percent in July to a record $29.4 billion. U.S. imports from China jumped 5.6 percent,” the Associated Press reports. “China’s economy has weakened this year and may be worsening. On Monday, China reported that its imports from the rest of the world shrank in August.”

Manufacturers Remain Anxious over Economic Uncertainty

Manufacturers report decreasing optimism as the business climate remains uncertain, driven by a slowing economy, increasing healthcare costs and the threat of the fiscal cliff, according to the third-quarter National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers.

Of the 514 manufacturers surveyed, 78.7 percent ascribed their uncertainty to the political climate, specifying that the fiscal cliff and possible budget cuts were the primary source of their worries, Reliable Plant noted.

A further 69.4 percent highlighted rising healthcare and insurance costs as the second-most important issue facing their business, while 62.4 percent singled out taxes and regulations as major concerns. Those respondents who described themselves as “somewhat negative” about the future jumped to 29.6 percent from 15.8 percent in the second quarter.

The first-quarter survey pegged manufacturer optimism at 89 percent, while second-quarter optimism fell to 83 percent; the latest survey puts that number at 69.2 percent.

“Manufacturers are sending a clear message that Washington’s action or inaction can have a serious effect on our economy,” NAM Chief Economist Chad Moutray explained. “The Congressional Budget Office has already warned that falling into the fiscal abyss will mean a recession next year, and manufacturers are not optimistic that Washington will be able to set us back on track in time. Unless Washington takes bold action to address the economic and political uncertainty and puts in place a pro-growth business climate, we can expect to see more dismal economic growth and pessimism from manufacturers.”

Jobless Claims Rise

New initial jobless claims increased in the latest week reported, indicating continued challenges in the labor market recovery. According to the U.S. Department of Labor, seasonally adjusted unemployment insurance claims for the week ending September 8 rose by 15,000 to a total of 382,000, the highest level since mid-July. The four-week moving average, which provides a more accurate long-term picture, climbed by 3,250 to 371,750.

“The number filing for help last week was inflated by about 9,000 due to Tropical Storm Isaac…” CNN Money explains. “That spike made last week’s filings the greatest number of people losing their jobs since 388,000 filed for help in the week ending July 14.”

Apart from the additional claims resulting from the storm, the latest weekly increase indicates sluggish performance in the jobs market as many companies remain reluctant to hire new workers. Moreover, August’s employment numbers were weak, showing the private sector added only 96,000 jobs last month.

“Although layoffs have fallen to exceedingly low levels, companies are not hiring very much. The U.S. has added barely enough jobs in 2012 to stay ahead of population growth, averaging about 140,000 a month. That explains why the unemployment rate remains high at 8.1 percent,” MarketWatch notes. “What’s more, there’s little reason to expect employment to accelerate soon. U.S. growth has slowed and the threat of higher taxes and deep spending cuts in 2013 — the so-called fiscal cliff — has injected more uncertainty into the economy. Businesses are being very cautious about spending and hiring plans.”

Reshoring More Attractive for Heavy Manufacturing

Seven key factors are likely to influence manufacturing re-shoring trends, with heavy manufacturers expected to experience the most advantages in producing domestically, according to a new report from PricewaterhouseCoopers.

The report underscores the primary factors that are influencing re-shoring back to the U.S., including: a rise in transportation and energy costs; currency fluctuations that are advantageous to the U.S.; U.S. market demand; an advantage in domestic workforce talent; the availability of capital; the tax and regulatory climate; and more competitive U.S. labor costs.

Despite a heavy emphasis on rising labor costs in overseas markets, including China, as a basis for re-shoring, the seven factors are considered integral in shifting manufacturing back to the U.S., a move vital for the nation’s economic recovery. Heavy manufacturers, particularly in the chemicals, primary metals and heavy equipment manufacturing sectors, will benefit most from domestic production in relation to “costs spanning labor, materials, transportation and energy,” the report revealed.

“Depending on the industry, there may be considerable benefits to establishing regionalized supply chains and R&D facilities in the U.S., such as reducing costs, shortening lead times, protecting intellectual property and mitigating many of the risk factors inherent in developing markets,” Bob McCutcheon, the PwC’s U.S. industrial products leader, said.