Assignment #4 “Interpreting Macroeconomic Conditions”
Professor: Dr. Blondel Brinkman
ECO 550: Managerial Economics and Globalization
June 5, 2011
When assessing the size and importance of the U.S. manufacturing sector, it is vital to recognize that many other sectors, such as finance, telecommunications, wholesale and retail trade, and accounting, depend on a strong manufacturing base. While U.S. manufacturing itself is the eighth largest economy in the world, its impact on the overall U.S. economy is much larger when this “multiplier effect” is taken into account. And reports of the demise of the ...view middle of the document...
S. Manufacturing Industry.
Purchasing Managers Index – PMI an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
Economic activity in the manufacturing sector expanded in May of 2011 for the 22nd consecutive month, say the nation's supply executives in the latest Manufacturing ISM (Institute for Supply Management) Report On Business. The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month's index, however, registered 6.9 percentage points below the April reading of 60.4 percent, and is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months. Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 24th consecutive month in the overall economy. Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (59.5 percent) corresponds to a 5.9 percent increase in real gross domestic product (GDP). In addition, if the PMI for May (53.5 percent) is annualized; it corresponds to a 3.8 percent increase in real GDP annually”.
Eventually in the long run production will increase and with increased price of products supply and demand will reach equilibrium in both price and quantity. This equilibrium will remain for sometime until one or more determinants of demand or supply will change.
In accordance with U.S. Department latest data released on March 28 2011, U.S. manufacturing corporations’ seasonally adjusted after tax profits in the fourth quarter of 2010 totaled $135.3 billion, up $11.8 (±0.9) billion from the after tax profits of $123.5 billion recorded in the third quarter of 2010, and up $32.3 (±0.2) billion from the after-tax profits of $103.1 billion recorded in the fourth quarter of 2009.
While manufacturing sector expanded over last several quarters the average American worker earned $22.87 an hour in March -- the same rate as in February. Overall, average hourly earnings have gained only one cent or 0.04% since January. In accordance with data provided by Bureau of Economic Analysis (U.S. Department of Commerce), total compensations of employees in manufacturing sector in April 2011 were $704.0 billions or 0.8 % increase compare to March 2011. And workers aren't picking up extra hours either. The average workweek was unchanged at 34.3 hours in...