American factories were humming in June.
The U.S. manufacturing index ISM rose to its highest level, 57.8%, since August 2014, according to a release published Monday. Production, employment and new orders all showed solid gains last month.
Three key drivers behind the increase: a weakening dollar, rising global growth and a solid U.S. economy.
The U.S. dollar surged to a 13-year high after President Trump’s victory in November. Business owners became optimistic at the prospects of tax cuts, fewer regulations and an ambitious plan to rebuild American roads and bridges.
But hopes are cooling that Trump can get his major economic reforms done this year, which has sent the dollar down to pre-election levels. In June, U.S. consumer confidence fell to its lowest level since November, though is still high overall. Small business optimism also remains very high, though it too has dropped a notch since January.
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However, a weaker dollar paired with solid global growth plays well for U.S. manufacturers. A weaker dollar makes U.S. goods more affordable — and attractive — to foreign buyers. American manufacturing depends heavily on selling to international markets.
In early 2015, the dollar rose at its fastest pace in 40 years. The sharp increase in its value caused U.S exports to decline. Weak demand for U.S. goods caused the American manufacturing sector to go into a recession in late 2015, which has since ended.
Now global growth is picking back up as prices for commodities like oil are stabilizing and geopolitical risks are relatively low. The U.S. economy is also in good shape: It’s added jobs for 80 straight months and grown for eight straight years, albeit slowly. A healthy economy boosts demand for manufactured goods.
That backdrop has helped create more U.S. jobs. So far this year, manufacturers have added 55,000 jobs, much better than the 24,000 factory jobs lost over the same time last year.
by Patrick Gillespie
