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back to index backAMERItalk November,  2016


Moody's: Outlook for the North American manufacturing industry remains negative

New York, November 02, 2016 -- The outlook for the North American manufacturing industry remains negative, Moody's Investors Service says in a new report. Earnings will grow only marginally in the coming next 12 to 18 months, after contracting this year, and many companies will be compelled to look for new ways to lower their costs.

"Our negative outlook for the North American manufacturing industry reflects our expectation that industry EBITDA will grow by less than 2% in 2017," says Moody's VP-Senior Analyst Paul Aran. "While G-20 GDP growth likely will improve somewhat next year, a number of manufacturing segments will remain challenged."

The slow recovery in oil prices is unlikely to provide a meaningful stimulus to manufacturing though mid-to-late 2017, Aran says in "Manufacturing -- North America: Demand Appears to Have Touched Bottom, but Growth to Remain Weak." Stable-to improving oil rig counts and slightly higher prices would be among the signs of an improving outlook for manufacturers serving the energy sector, but for now demand remains depressed.

Additionally, US new orders for durable goods remain relatively flat, but inventories remain near post-recession highs. Even if demand recovers, inventories may be high enough to dampen any boost to production, leading to protracted slow growth. Meanwhile, modest GDP growth would keep the margins of durable goods manufacturers under pressure as companies struggle to improve efficiencies while managing underutilized plants.

"We expect that manufacturing companies will continue to look for ways to lower their operating costs," says Aran. "But because many have likely already taken actions such as reducing head-count, pressure will mount to sell more products to the same clients, divest of noncore businesses or move additional manufacturing overseas."

Moody's expects global economic growth to be modest over the next year or so. Industrialized economies should see relatively stable but low growth, and Chinese expansion will be below historical levels. In a slow-growing US economy the Federal Reserve may raise interest rates more slowly, which would likely not have as meaningful an impact on manufacturers as many have already taken advantage of low rates to refinance their debt.

Source: Moody's - GAI






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