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U.S. Manufacturing Achieves Important Benchmark

Written by Ken Gaebler
Published: 12/6/2013

Reuters reports that American factory activity hit a two and a half year high in November, signaling the growing strength of the U.S. economy.

In many ways, the manufacturing sector serves as a bellwether for the national economy. When activity is down, it's a sign that retailers and other buyers are cutting back on orders, often due to a negative or uncertain economic outlook.

United States Manufacturing Activity

But when manufacturing activity is up, it can be a signal that the economy is strengthening--a scenario that is currently playing out in the U.S. manufacturing industry. According to a recent Reuters report, the Institute for Supply Management (ISM) Index--a gauge of U.S. factory activity--hit a two and a half year high in November, further reinforcing sentiments that the nation's economy is regaining its footing following uncertainty during the economic recovery.

In fact, U.S. factory output and other indicators are causing speculation that the Fed may soon start to rollback its stimulus program, based on an increasingly positive economic outlook.

"The economy is moving forward at a moderate to strong pace," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York told Reuters. "This is additional evidence that the economic outlook is positive enough and expected to continue long enough and that the Fed might actually taper in December."

But despite the uptick in factory activity, some industry insiders have pointed to other indicators as signs that manufacturing may actually be poised for a slowdown. Specifically, durable goods orders and industrial production/factory payrolls seem to indicate that a slowing down in manufacturing and factory activity is on the horizon.

"The persistent strength in the ISM increases our confidence that business investment in the fourth quarter will bounce back from the contraction in the third quarter, but we remain of the view that this rebound will be limited," said Bricklin Dwyer, an economist at BNP Paribas in New York.

While the strength of the economy clearly ranks high among growth business strategy planning considerations, it isn't the only variable that needs to be evaluated. For small businesses that either manufacture products directly or sell to manufacturing companies, it can be just as important to understand how specific short-term risks and opportunities will impact your company's long-term outlook.

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