A growing number of industrial companies say their sales are softening in China, threatening a strong three-year run for U.S. manufacturers.
Makers of everything from bulldozers to computer chips have bet heavily on growing business in a country of 1.4 billion people with an increasing appetite for world-class consumer goods and infrastructure. U.S. exports to China doubled over the decade through 2017 to $130 billion a year, according to the Census Bureau.
Now that opportunity has become a potential liability for some companies as China’s economy slows to its lowest rate of growth since 1990.
“China is weaker than normal, weaker than seasonal,” Keith Jackson, chief executive of ON Semiconductor Corp., said earlier this month.
Industrial bellwethers Caterpillar Inc. and 3MCo. , which both make about a tenth of their sales in China, are set to report their latest earnings in the coming week. The companies in October said they were concerned about China’s slowing economy, sparking a selloff in their shares and the broader U.S. industrials sector.
Industrial glue maker H.B. Fuller Co. , which makes about 13% of its sales in China, said weaker demand there had cut $10 million off its profit in 2018 and would likely reduce profit by $20 million this year.
“We had estimated weakness in China,” Chief Executive James Owens said. “It was actually worse than we expected.”
PPG Industries Inc. said sales of its coatings for cars made in China fell 15% in the fourth quarter. Tool maker Stanley Black & Decker Inc.said it expects slower economic growth this year in China and most of the rest of the world.
The slowdown in the world’s second-biggest economy is hurting some small U.S. firms too. Horween Leather Co., a Chicago tannery that exports about 40% of its premium hides to luxury shoe and luggage makers in China and elsewhere, saw sales decline about 10% last year. Company president Skip Horween is slowing production to reflect the lower demand.
“I think there’s a period of adjustment coming,” Mr. Horween said.
Other manufacturers that make most of their sales in the U.S. say business remains strong. Orders rose about 15% last year at Atlas Tool Works, an Illinois parts maker with 70 employees and about $9 million in annual sales. Rising Pentagon spending has trickled down in more orders for the parts Atlas sells to defense contractors including Northrop Grumman Corp. and Boeing Co.
“We’re really busy,” said Zach Mottl, a fourth-generation executive at the family-owned firm. “We’re seeing some really nice uptick in demand.”
U.S. factory output in the third quarter reached its highest point since the financial crisis, the Bureau of Labor Statistics said. Manufacturers have added a half-million jobs in the past two years, a 4% increase.
But recent weaker demand in China and other countries is threatening that stretch of strong performance. A U.S. factory-activity index fell further than expected in December, according to the Institute for Supply Management. A subset of the index that measures new export orders was at a two-year low, suggesting softer sales abroad for many of the hundreds of companies that participate in the survey.
China isn’t the only problem for U.S. manufacturers exposed to global trade. A stronger dollar and higher costs as a result of tariffs on some foreign goods are also weighing on some companies.
The WSJ Dollar Index, which tracks the dollar against a basket of currencies, is up 7% from a year ago, meaning overseas sales equate to less earnings in dollar terms. And U.S. companies face higher prices for steel, aluminum and Chinese-made goods like engines and vinyl flooring that are now subject to tariffs.
Correct Craft Inc., a Florida-based boat manufacturer, is paying more for aluminum, and it is losing sales in Europe as a result of retaliatory tariffs placed on boats made in the U.S.
“It’s been tough,” Chief Executive Bill Yeargin said. “We spend a lot of time thinking about recession planning.”
By Austen Hufford and Patrick McGroarty