Manufacturing Sector Concerned Over Third Quarter GDP Estimates Released by U.S. Bureau of Economic Analysis: Capital Investment and Construction Flat to Negative

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The latest GDP estimates for the third quarter were released by the U.S. Bureau of Economic Analysis, showing a 2 percent growth in GDP. While this moderate growth is not cause for concern, The Lending Circle is concerned when reviewing the specifics of the report. Notably, the fact that manufacturing in the U.S. appears to be weakening at a time when growth is needed. Both capital investments and construction were flat to negative, showing that manufacturers are unable to grow and expand in the current economic weakness.

The Lending Circle, a Division of Sunovis Financial

… business spending stalled in the third quarter, with capital investments flat and building levels in decline.

The latest data released by the U.S. Bureau of Economic Analysis shows that the U.S. economy, as expressed by Gross Domestic Product (GDP), grew an estimated 2 percent in the third quarter of 2012. Gains in GDP were led by housing, strength in spending on consumer goods, and spending by the federal government. The Lending Circle, a division of Sunovis Financial, is viewing the release with some trepidation though, as business spending stalled in the third quarter, with capital investments flat and building levels in decline. Additionally, exports are down due to a weak global economy. Overall, this quarter’s GDP data is flat to negative for the manufacturing sector.

Exports may continue to be challenged, with data coming from Europe indicating that the Eurozone problems continue to worsen. Both manufacturing employment and PMI have declined in October, based on data from Markit. Data from China also shows continuing weakness there, though PMI numbers moved upwards from 47.9 in September to 49.1 in October.

The U.S. manufacturing sector, while seeing a decrease in both new orders and exports, is continuing to recover slowly despite the headwinds from overseas. Gains were seen in employment, output, and inventories in October, leading to a slight increase in PMI from 51.2 to 51.3.

Durable goods orders provided a bright spot in the report, rising 9.9 percent in September. While this is encouraging for the manufacturing sector, volumes are still lower than they were in July. In addition, the Chicago Federal Reserve Bank’s National Activity Index improved from -1.17 in August to 0 in September, with manufacturing production leading the way. That being said, the three month average in this index still shows the economy operating below its historical trend.

Based on all available data at this time, The Lending Circle can only conclude that the U.S. manufacturing sector, though showing some promising signs, continues to be weak. A combination of weak global demand and the looming fiscal cliff in the U.S. has dampened growth, with some experts estimating that it has already cut 0.6 points from GDP in 2012. Should the U.S. actually fall off the fiscal cliff, it is possible that a complete recovery in employment and economic activity would take much longer.

About The Lending Circle
The Lending Circle, a division of Sunovis Financial, works to address the great pent-up need for financing nationwide, and will help borrowers with their needs whatever they may be.

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Kathy Heshelow
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