How The Manufacturing Slowdown Is Impacting U.S. Businesses
MARY LOUISE KELLY, HOST:
Recession - the word has been hanging in the air since the Dow Jones ricocheted around this week, at one point, Wednesday's close closing down 800 points. But the economy, as we often point out, is not just the stock market. A number of factors contribute to its overall health, and one of them is manufacturing. Now, if the jury is still out on whether a recession is coming for the broader economy, some people are concerned it has arrived in the manufacturing sector. To talk more about that, I am joined by Shawn Donnan, senior economics writer for Bloomberg News.
SHAWN DONNAN: Hi.
KELLY: Hi. What are the warning signs for manufacturing?
DONNAN: Well, one of the things we've seen in manufacturing is literally a contraction in production. So industrial production in the United States contracted in July. But more importantly, it contracted in the first two quarters of this year. Two consecutive quarters of contraction is what most economists like to call a recession.
KELLY: Although, there is still job growth in the manufacturing sector, right?
DONNAN: Just, and it depends where you look. It's clear that President Trump at least can point to some positive signs in the first two years of his presidency. He's added about 500,000 manufacturing jobs by some broad measures since he took office. But this year, things have flattened out a lot. And it depends where you look. If you look at Pennsylvania, for example, they've actually - have 5,000 less people working in manufacturing than they did at the beginning of this year.
KELLY: And I know we've caught you in Wisconsin today doing some reporting right along these lines. What are you hearing from people?
DONNAN: Yeah. So I was meeting with a company yesterday that was furloughing workers at the end of this month. And that's a direct result of lack of demand out there. They're reducing production, they're cutting their weekend shifts. They're not hiring new people. They're not expanding. They're putting a pause on investment at a new R&D facility.
And that's a theme you hear a lot from manufacturers around the country. I was in Pennsylvania earlier this week and talking to a manufacturer there who had, for the last two years, been thinking about expanding into a new lot, a new (unintelligible) lot, behind their current factory, and has just put that on hold for the time being.
KELLY: Really? And what role are tariffs playing in this? Fears of trade war?
DONNAN: So a very real role. The president likes to say that China is paying for these tariffs, and that's something that really irks a lot of manufacturers who literally get the bill for these tariffs. Again, that company I was visiting yesterday, they buy about $2.3 million of ball bearings from China, and they're paying $138,000 more this year as a result of tariffs. That's money that's going straight to the U.S. Treasury. And the general manager there was saying every time he hears the president talk about China paying the cost of these tariffs, he just kind of wells up, gets angry and starts pounding the steering wheel of his car.
KELLY: Really? Wow. So for a president who campaigned on bringing back manufacturing jobs, how big a potential liability might this be, looking ahead to 2020, in states like Pennsylvania, Ohio, Wisconsin, some of the others you've been visiting?
DONNAN: Well, look, that's the big question. The polls are showing that in some of these places, he is looking a little bit softer in terms of support than he might have otherwise. The real question's going to be where things turn between now and Election Day and whether this contraction in manufacturing accelerates, gets worse, it broadens out into other parts of the economy, or whether it's just a kind of one-time dip that we bounce back from later this year or early next year.
KELLY: So where do you fall on this question of whether manufacturing is headed for a recession, in a recession already? Where is it?
DONNAN: So one of the most interesting conversations I had yesterday was with a purchasing manager at this company here in Wisconsin who says six months ago he was going out and trying to find steel fabricators to do work for them. Now he's getting calls almost every day from companies offering to do work for them. That, to him, is a sign of softness in the economy. And he said, look, that's a leading indicator - from where I sit, things look a lot worse than they do on Wall Street.
KELLY: Shawn Donnan, thank you.
DONNAN: Thanks for having me.
KELLY: Shawn Donnan of Bloomberg News.
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