Sales for privately held manufacturing businesses fell drastically this year, according to preliminary estimates from financial-information company Sageworks. The data is triggering new fears that America’s tenuous economic recovery could stall.
Average sales for privately held companies grew at 3.8 percent in 2013. That growth is significantly less than the 9.4-percent increase seen last year and the 9.9-percent increase in 2011.
Manufacturing businesses fared worse, experiencing growth of just 2.3 percent in sales, compared to 10.5 percent last year and 15 percent in 2011.
The slowdown is troubling, as it could result in a cutback in hiring, said Sageworks Chairman Brian Hamilton. Business owners already face uncertainty regarding policy issues and other external factors, he explained in a statement, adding that the new data “does not bode well for the already inconsistent hiring and investment plans for these companies.”
Sageworks notes that private companies drive more than 50 percent of the nation’s GDP and create 65 percent of all new jobs.
“Companies haven’t been eager to take on new employees and extra overhead, even when they were seeing double-digit sales growth,” said Hamilton. “I worry about what will happen now that the rate of sales growth has cooled off. We’re also approaching the tail end of the average expansionary period in the United States, which makes this trend especially disturbing.”
Despite the poorer sales, net profits margins for private businesses spiked to 9.1 percent. Debt-to-equity ratios dipped to 2.9, from 3 last year and 3.1 in 2011. Net manufacturing profits rose to 7.2 percent from 5.3 percent and 4 percent respectively.
Chemical Industry Gets a Boost in September
The U.S. economy will continue to improve and is expected to expand into 2015, according to the American Chemistry Council’s (ACC) monthly Chemical Activity Barometer (CAB). The CAB was developed by ACC to show U.S. business cycles by an average of eight months at cycle peaks and four months at cycle troughs.
The September CAB increased 0.4 percent over August on a three-month moving average (3MMA) basis. This is a 3.3-percent rise over the same time last year. The index itself is at its highest point since June 2008.
“This 0.4-percent jump is a real improvement in growth dynamics from the smaller yet steady increases we saw from March through August,” said Dr. Kevin Swift, chief economist at ACC. “The Chemical Activity Barometer is showing a strengthening of some fundamentals, with forecasts remaining positive. Indeed, there is potential for upside surprises in the U.S. economy.”
Continued improvements are expected in construction-related plastic resins, coatings, pigments, and other chemistry, though at a moderated pace, suggesting that the rapid gains typically seen early in a recovery have given way to a slower pace of growth. Production of plastic resins used in consumer and institutional applications continues to grow at a strong pace, with the potential for even greater acceleration.
CAB is derived from a composite index of chemical industry activity. ACC says the chemical industry consistently leads the U.S. economy’s business cycle due to its early position in the supply chain, and the CAB can be used to determine turning points and likely trends in the wider economy.
Durable Goods Orders Up
Durable goods sold at a slightly higher rate in August following an unexpected and troubling drop in July, according to a report released by the U.S. Commerce Department.
Orders of manufactured goods intended to last three or more years rose by 0.1 percent in August, according to the report. This small increase follows a significant drop of 8.1 percent in July, which was attributed to poor orders for volatile commercial aircraft. August’s slight bump was tempered by poor orders for defense aircraft and other military goods. Excluding aircraft orders, August orders for capital goods grew 1.3 percent, following a 3.3-percent decline in July.
Economists view this poor showing as further evidence of industry’s guarded spending practices.
“Companies are still cautious in their capex (capital expenditure) due to the uncertain economic scenario,” Annalisa Piazza, an analyst at Newedge Strategy, told Reuters.
The overall U.S. economy grew at a 2.5-percent rate from April through June, up from 1.1-percent annual rate in January to March. The July to September quarter is expected to grow at an annual rate of 2 percent, according to The Associated Press.
Second Quarter GDP Remains Unchanged
The latest Gross Domestic Product (GDP) report from the Commerce Department reveals that the output of goods and services produced by labor and property in the United States increased by 2.5 percent from the first quarter to the second quarter in 2013.
This third estimate was released by the Bureau of Economic Analysis, and is drawn from a more complete data source than last month’s second estimate. The latest data suggest that the economic growth remains largely the same as in previous estimates. Many economists predicted growth would be revised up to 2.7 percent.
GDP growth in the second quarter reflects surges in exports and in nonresidential fixed investment, with a smaller decrease in federal government spending. There was also an upturn in state and local government spending. Gross domestic purchased increased by 0.2 percent in the second quarter, and real exports of goods and services increased by 8.0 percent during the second quarter, compared to a 1.3 percent decrease in the first quarter.
Real federal government consumption expenditures and gross investment marked a slight improvement, decreasing by 1.6 percent in the second quarter, compared with a decline of 8.4 percent in the first.
Personal Income Rises More Than Expected
Americans spent slightly more at the cash register in August as their incomes grew at the fastest pace in six months — good news for the U.S. economy.
Personal spending increased by 0.3 percent last month after rising by an upwardly revised 0.2 percent in the previous month, according to data released by the U.S. Commerce Department. The spending spurt was in line with economists’ expectations.
The data also show that personal income increased by 0.4 percent in August, the largest gain since February. The initial July figure of a mere 0.1-percent increase in personal income raised concern about the anticipated uptick in economic growth in the second half of the year. Augusts’s data spark some optimism about the strength of the recovery.
Still, median incomes have been declining steadily since 2007, according to data released last week by the U.S. Census Bureau. When median incomes fall while personal per capita incomes rise, it’s taken as an indication that the rich are getting richer, or the poor are poorer, or both are occurring simultaneously.
Jobless Claims Drop Draws Cautious Optimism
The number of Americans filing for first-time unemployment benefits fell unexpectedly last week, which many economists see as the beginning of a labor-market recovery.
Jobless claims fell by 5,000 to 305,000 in the week ending Sept. 21, a U.S. Labor Department report shows. The figure no longer reflects distortions caused by computer glitches in California and Nevada.
“We definitely have seen a gentle downtrend in claims over the course of the year,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn., told Bloomberg. “Unfortunately, the problem for the labor market for a long time has not really been the pace of layoffs. It’s been the slow pace of hiring.”
In August, employers added only 169,000 jobs. While the unemployment rate has decreased to 7.3 percent, it is largely due to a shrinking labor force and not a boost in hiring.