US Manufacturing Contracts in November Due to Strong USD

U.S. manufacturing contracted in November for the first time in 36 months as the sector buckled under the weight of a strong dollar and deep spending cuts in the energy sector.

But the economy remains on firmer ground, with other data on Tuesday showing a sturdy increase in construction spending in October as outlays rose across the board.

The Institute for Supply Management said its national factory index fell to 48.6 last month, the first contractionary reading since November 2012, from 50.1 in October. While a reading below 50 indicates a contraction in manufacturing, the index remains above 43.1, which would signal a recession.

Manufacturing, which accounts for 12 percent of the economy, has been hammered by dollar strength and the spending cuts by energy firms. The dollar has gained 18.1 percent against the currencies of the United States’ main trading partners since June 2014.

Manufacturing has also been undercut by business efforts to reduce an excessive inventory build, which will put pressure on new orders. Recent data on business capital spending plans and factory output had offered hope that the worst of the sector’s woes were over.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza