Manufacturing Contracts more than August Forecast

Manufacturing Contracts more than August Forecast

Manufacturing Contracts more than August Forecast

During August there was a lower than forecasted output by U.S. manufacturers. The fall is somewhat surprising to economists as they made predictions that the industry would start to rebound.

So what are the numbers?

The decline happened to be the biggest since March at a 0.4% drop. This completely unravels the 0.4% increase in the prior month. In addition to this total industrial output including mines and utilities fell by 0.4%.

What it means

This raises a lot of concerns to investors, economists and policy makers. Factory output is generally a sign of the economy and how strong it is. This data shows an economy that is struggling to stand on its feet and may influence policy decisions going forward.

On Monday the Federal Reserve (FED) insinuated a possible rate hike coming soon. This was amidst concerns that the economy did not have the strength to stand without support. There was a lot of controversy relating to the pending FED decision and this led to an extreme amount of volatility in the markets. The VIX (INDEXCBOE:VIX) rose above 18 due to the reaction. The market is still volatile since the VIX (INDEXCBOE:VIX) is still above 14 being at 15.87 as of Thursday midday.

However with the new developments with the manufacturing numbers the FEDs and other policy makers may have to consider their pending rate decision once more. A weaker economy may need little more support or some patience before making a rate hike. The Federal Reserve will more than likely not raise rates as a result and this will have some effects that some investors may love.

The effect on Investors

Some investors at the moment are not excited about a possible rate hike. Maybe they have already seen the weaknesses in the economy and know that a rate hike is not that healthy. Up until now the market has been in an induced sell off. This new data may not reverse the previous downtrend but it may keep the market consistent and reduce volatility, not directly but by affecting the FED’s rate decisions.

Ultimately the effect that this may have on the markets may have to deal with how the Federal Reserve will react to it. In and of itself it may cause a market slump throughout the rest of the week but it shouldn’t cause a long term decline for the rest of the month. The FED should be reacting soon and how they react will say a lot about the economy and its overall strength.