Despite the chaos of Britain’s withdrawal from the European Union, the US manufacturing sector appears to be pushing forward. As the dollar soared in value since 2014 after the Federal Reserve tapered off quantitative easing measures, America’s manufacturing sector stagnated due to the strong dollar. Recently, however, the American industry has staged any further movements, despite the downturn in the global economy. Now analysts are taking a look at preliminary manufacturing data before the Brexit referendum and are finding that the US will be mostly unaffected.
A survey of analysts by The Wall Street Journal predict that manufacturing activity in the US not only grew but increased at a faster rate than anticipated rate last month. The manufacturing index maintained by the Institute for Supply Management (ISM) rose and continued to remain above the 50 points mark for three consecutive months now. The 50-point mark indicates the difference between growth and contraction. Now the WSJ survey hints at further gains in this index, despite the impacts from the Brexit. ISM says that most respondents included in the index share their opinions near the end of the month, which will likely include any Brexit concerns.
The impact of the Brexit may be minor to the US manufacturing sector considering that only 4 percent of US exports go to the UK. Demand for goods across the globe has fallen over the past several months as the global economy seems to falter, but the US has still managed to find new avenues for its exports. The European Union, which will also be impacted by the British exit, accounts for 15 percent of US exports, which may play an ever larger role to a potential slowdown compared to the UK. Regardless, American industrial activity appears to be pushing ahead. The regional Chicago PMI posted last week suggests manufacturing activity remained strong through the end of June.
A multitude of factors has come together to help the US manufacturing sector stage its rally. After making strong gains for over 2-years, the US dollar has retreated a bit, over worries that the Federal Reserve will continue to delay an additional interest rate hike. Industrial companies now find it easier to receive foreign investment and orders due to the weaker dollar. Additionally, commodity markets appear to be recovering, in particular, oil prices. Data from the past several months suggests that US oil rigs have fallen in number, but increased in efficiency. GDP growth figures were downgraded through most of 2016, but recently analysts have increased their estimates for Q2 2016 growth to 2.7 percent.