Likelihood of a Federal Reserve interest rate hike anytime soon may have diminished Thursday with reports that U.S. retail sales, including automobile sales were down.
To make matters worse, with buying depressed, manufacturers have slowed down production to account for lower demand. All together manufacturing fell 0.4% in August, wiping out July’s increase.
Decline Is Worse Than Forecast
The 0.4% August decline at factories was the largest decline since March and more than the 0.3% the Bloomberg survey median called for. Total industrial output, including mines and utilities, also declined 0.4%, more than the expected 0.2%.
This news is less than helpful for manufacturers trying to recover from the energy sector pullback, excessive inventories and the lingering effects of a strong dollar.
Scott Brown, a St. Petersburg Florida-based economist for Raymond James Financial Inc. said, “We expect more of the same the rest of the year. The weakness in capital investment is a global phenomenon.”
On The Other Hand
Some, including Forbes, are suggesting news isn’t nearly as bad as advertised – primarily because manufacturing simply isn’t a huge and important part of the U.S. economy any more.
In fact, some experts suggest recent negative numbers and economic fears surrounding both manufacturing and agriculture are more hype than reality.
With regard to manufacturing, since it only occupies 15% of the entire global economy (12% of the U.S. economy), a 0.4% drop is not seen as that significant by those pushing back against the doom and gloom crowd.
Put another way, a 0.4% drop in 12% of the U.S. economy represents a fall of about 0.048% of GDP. As Forbes noted, we don’t actually measure GDP to that level of accuracy.
Investors Should Not Panic
Investors have no reason to pull up stakes in manufacturing, especially based on recent numbers, say some. Looking for bargains among solid companies can still reward the careful hunter, even in manufacturing.
One such company, Emerson Electric Co. (NYSE:EMRF), designs and manufactures electronic and electric equipment for industrial applications. The stock appreciated almost 16% YTD as of August 2016 and provides a yield of 3.7%.
Johnson Controls and Tyco merged to form Johnson Controls Intl. plc (NYSE:JCIC), a global leader in building products and technology. Dividend yield is 4.33% and the analysts expect a Forward EPS of $1.12.
Deere & Co. (NYSE:DEC) is well known for its agricultural machinery, primarily tractors. The company also sells construction, forestry, commercial and consumer equipment. The company is believed to be priced cheaper than its peers with a P/E ratio of 16.11. Dividend yield is 2.98%.