ISM Index Archives - Shopfloor

ISM: Manufacturing Activity Contracts Once More in November

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The Institute for Supply Management’s purchasing managers’ index (PMI) moved lower in November, falling once again into contraction territory. The PMI fell from 51.7 in October to 49.5 in November. It is clear that worries about slowing sales and the fiscal cliff are having an impact. Additionally, the Mid-Atlantic region was likely affected by Hurricane Sandy.

Many of the subcomponents of this measure reflected a worsening of conditions in the past month. For instance, the index for new orders declined from modest growth (54.2) to essentially neutral (50.3). Reduced export sales were likely a factor in this decline, falling from 48.0 to 47.0, but easing domestic sales were probably also to blame. Surprisingly, the pace of production edged slightly higher in November, up from 52.4 to 53.7. However, this could be short-lived given the slowing of new sales.

Later this week, we will learn about hiring in the manufacturing sector both from ADP on Wednesday and the Bureau of Labor Statistics on Friday. The ISM figures suggest that these numbers will be weak, or potentially declining. Indeed, the index for employment dropped from 52.1 to 48.4, suggesting that more manufacturers are reducing their staffs than hiring during the month. It is the first time that this index has contracted in over three years. To demonstrate the extent to which net hiring has diminished, the employment index stood at 56.9 just six months ago in May.

The sample comments that were provided help frame the decreased levels of optimism in this month’s report. The concerns range from worries about the global environment to the U.S. fiscal situation. As one fabricated metal products company wrote, “The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed…” Regarding international sales, a chemical manufacturer added, “Global economic uncertainty still seems to be sticking around, which is not necessarily making things worse, but it is also not making things better from a demand standpoint.”

A food manufacturer said that their business was in a “lull” right now.  That pretty much describes how many business leaders feel, with most of them frustrated with our political leaders for failing to avert the fiscal cliff up to this point.  Hurricane Sandy also played its part in reducing activity. But, based on the statements in the ISM survey as well as with the several manufacturers that I spoke with last week, business leaders are extremely nervous about the future direction of the economy.

Chad Moutray is chief economist, National Association of Manufacturers.



ISM: Manufacturing Contracts For Third Consecutive Month

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The Institute for Supply Management (ISM) said that the manufacturing sector contracted in August for the third consecutive month. The purchasing managers’ index (PMI) was 49.6 in August, mostly unchanged from the previous two months. It had been 49.7 and 49.8 in June and July, respectively. This data shows just how soft the market is right now, with manufacturing activity at a near stand-still and everyone anxious about the future direction of the economy. 

Most of the key subcomponents continue to contract, including new orders, production, and exports. Indeed, slowing sales were one of the central comments made by respondents who took this survey. As one individual from a computer and electronic products manufacturer noted, “Business is slow right now. Companies seem to be holding onto their money.” This was echoed by a chemical products company representative, who said, “Lackluster demand continues in all regions of the world ….”

With that said, the U.S. economy does continue to grow modestly, even as manufacturers begin to gear down. The overall measure for the macro environment reflects this, albeit with a slower pace of growth than last month. In addition, manufacturing employment is also up moderately, with the index for jobs currently at 51.6.

There are two other data points worth noting. First, inventories shifted from contracting last month to growing this time. This could suggest the weaker sales data. Second, the price index also went from contraction to expansion, up from 39.5 to 54.0. Manufacturers had benefitted from lower energy prices over the course of the last few months, but these costs have started to edge higher. In addition, some other raw material prices have also been higher. For instance, a food and beverage manufacturer wrote, “U.S. drought severely impacting raw material prices.”

In short, today’s ISM release confirms what we have seen in other economic indicators. The global economy is slowing down, weakening sales and heightening the worry of both manufacturers and consumers. As we approach the fiscal cliff, it has also become a major source of anxiety, and until policymakers are able to effectively address the nation’s challenges, U.S. economic growth will be hampered.

ISM Index Shows March Manufacturing Growth

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Today Institute for Supply Chain Management’s Manufacturing ISM Report was released for March and showed growth for the 32nd consecutive month. This is positive news for manufacturers as they continue to lead our economic recovery. 

The index rose to 53.4 percent in March from 52.4 percent in February. And one particular area of note is the Production Index increased by 3 percentage points to 58.3 percent.

Across manufacturing 15 of the 18 industries reported growth in March including: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Petroleum & Coal Products; Paper Products; Machinery; Miscellaneous Manufacturing; Wood Products; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. 

The concerning news is that Computer and Electronics Products and the Chemical Products industries reported a contraction. While manufacturing has continued to show growth this has not translated across all sectors. Manufacturers are still facing numerous headwinds which are limiting their ability to grow.

Manufacturers overall are optimistic but it’s clear we have some ground makeup. One company surveyed in the Wood Products industry commented, “Sales appear to be picking up over last year at this time, but still have a ways to go.”

ISM: Manufacturing Grows Modestly in January

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The Institute for Supply Management (ISM) released it purchasing managers index (PMI) this morning, showing a modest uptick in the pace of overall manufacturing activity in January. Note that much of the data for 2011 were revised due to new seasonal adjustment factors. With that revision, the PMI rose from 53.1 in December to 54.1 in January. The index has been above 50 – its threshold for expansion in the sector – for 30 months, or since August 2009.

Looking at the various components the news is more mixed. While all of the key areas are over 50 except for inventories, a couple did reflect some easing in their pace of growth. On the positive side, the new orders variable grew stronger, up from 54.8 to 57.6. Supplier deliveries and new export orders also improved in the month.

However, production, employment and imports rose at a slower rate. Inventories continued to contract, but neared the neutral point.  The pace of price increases for raw materials also gained some steam after contracting in the previous three months.

Most of the sample comments provided by ISM echoed these sentiments. A machinery respondent, for instance, said, “Year starting a little slow, but customers are positive about increased business in 2012.” This sums up the bulk of the comments, with optimism for a stronger year.

Interestingly, one individual in the computer and electronics manufacturing sector added, “Business lost to offshore is coming back.” We continue to hear such anecdotal pieces of evidence about reshoring, and if nothing else, it provides another hint of American competitiveness in light of recent labor productivity gains. The Bureau of Economic Analysis is releasing new productivity data for the fourth quarter tomorrow.

Overall, the ISM data shows the manufacturing sector continues to recover. But, like other data released this week it is clear that growth has been modest at best. January appears to be growing less strongly than in November or December. While the new orders figures in this report bode well for future activity, it would be nice to see that translate into higher production and employment growth in the months ahead.

Chad Moutray is chief economist, National Association of Manufacturers.

ISM: Manufacturing Growth Declines Rapidly

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Continuing a string of bad news for manufacturers, the Institute for Supply Management (ISM) released its Purchasing Managers’ Index (PMI) for manufacturing this morning, with the sector’s growth rate falling dramatically. The PMI fell from 60.4 in April to 53.5 in May. Numbers over 50 signify growth in the sector; however, while manufacturing is still increasing output, it is at a much slower pace than in prior months.  The accompanying chart illustrates this point. The indices for new orders, production, employment, export sales, and inventories all fell for the month.

There were many issues at play here, many of which we have discussed previously. Certainly, a large part of the decline was related to supply-chain issues, for instance, particularly in the durable goods sector. But, commenters also stressed the toll that rising raw material prices were having to their businesses. Bad weather was also a factor according to one sample respondent. 

It is clear that many manufacturers are feeling the effects of pricing pressures and challenges on their bottom line. 

There remains a large disconnect between current news surrounding manufacturing and the economy and longer-term business outlooks for the sector. A number of surveys, for instance, have suggested that manufacturers are relatively optimistic about production and new orders over the next six months, for instance. It will be interesting to see how these current figures alter that view, or whether the current statistics are a speed bump on a larger growth trajectory. 

Again, as I mentioned in my previous post today its clear that manufacturing has cooled in the past few months. Businesses of all sizes need help from policymakers in Washington to give them the needed tools to grow and create jobs. 

Chad Moutray is chief economist, National Association of Manufacturers.

January ISM Index Bodes Well for Manufacturers

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Today’s Manufacturing Report on Business issued by the Institute for Supply Chain Management (ISM) shows the prospect for increasing manufacturing sales in the near term.  This report confirms last week’s Commerce Department report that final sales increased at a torrid annual rate of over seven percent in the fourth quarter of 2010.  Together, these two indicators give reason for near-term manufacturing optimism.

The ISM Purchasing Managers Index (PMI) increased to 60.8 in January 2011.  The index is a “diffusion index” that measures the proportion of companies showing increases compared to decreases.  The January report is important for several reasons.  First, it is the highest index level since May 2004, and is up significantly from the previous month.  Second, the PMI index is reinforced by strong positive signals from supporting indices – particularly the important new order series, which leaped to 69.7 in January, the 19th consecutive month for growth, and up sharply from the slower growth trend of recent months.  Production, inventories and order backlog data also confirm the jump in outlook.

Exports have been one of the driving forces of the manufacturing recovery, and the report shows that the exports index increased in January by 7.5 percent to 62 percent. Exports are critical to manufacturing growth and our nation’s economic recovery and we need to continue to work to increase our manufactured goods exports to grow jobs and the economy. 

In January 14 of the 18 following manufacturing industries reported growth including: Petroleum & Coal Products; Primary Metals; Apparel, Leather & Allied Products; Wood Products; Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; Machinery; Paper Products; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

One cautionary note was also evident in the data is that prices are rising.  The price index rose to 81.5 percent, indicating a widespread range of price increases for manufacturing input.  Two-thirds of respondents indicated their input prices had increased in January.

All in all, today’s report shows that manufacturing output is likely to grow faster in the coming months.  However, we still have a ways to go for manufacturing to return to the peak pre-recession levels and then to a growth path that can set new records.

Frank Vargo is the NAM vice president for international economic affairs

Manufacturing Ends 2010 on a Positive Note

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Today’s manufacturing report by the Institute for Supply Management shows that the closely-watched Purchasing Managers Index increased from 56.6 in November to 57 in December, the highest level since May.  This confirms previous regional reports that the manufacturing recovery accelerated last month.  The December increase was driven by sharp improvements in both new orders and production, both of which rose to a level over 60 for the first time in seven months.

While the export orders component of the report moderated to 54.5 in December from 57 in November, the fact that the export index remains substantially above where it was eighteen months into the prior recovery is a positive sign that exports continue to be a strong source of growth for manufacturers.      

In the wake of the end of several fiscal stimulus programs in late spring, the manufacturing recovery had been slowing since mid-year.  Today’s report is a hopeful sign that the positive momentum of the recovery is rebuilding heading in to 2011.

November ISM Index Decreases Slightly

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Today’s Institute for Supply Management report on manufacturing showed that the closely-watched PMI Index of industrial activity moderated down slightly to 56.6 in November from 56.9 in October, which was the highest level in five months.  Two-thirds the way through the fourth quarter and the PMI index during the past two months has been measurably higher than the 55.4 monthly average during the third quarter. 

However, the fact that several important components of the report (exports, production, new orders and employment) are not as high as they were during the first half of the year indicates that the manufacturing recovery has slowed. This is likely due to continued weakness in the housing market which is a major demand driver for manufacturing industries such as wood products, furniture and nonmetallic minerals which were some of the industries that did not report growth last month.

Manufacturing, Stirring

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From The Financial Post (Canada), “U.S. factory floor shows signs of life“:

Drew Greenblatt has added a couple of engineers, a robot and a third production schedule to meet the jump in demand from automakers, pharmaceutical companies and other customers who use his assembly-line baskets.

“Our guys are running overtime to keep pace with the backlog,” says Mr. Greenblatt, owner of Marlin Steel Wire Products in Baltimore.

The U.S. economic recovery is showing up in the unlikeliest of places — the U.S. factory floor.

The news peg is yesterday’s ISM’s manufacturing index, which climbed 3.1 points to 55.7 (vs. 53.3 consensus), with growth responding to the decline in inventories. From the Institute for Supply Managment, “October 2009 Manufacturing ISM Report On Business®”:

 The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The manufacturing sector grew for the third consecutive month in October, and the rate of growth is the highest since April 2006 when the PMI registered 56 percent. The jump in the index was driven by production and employment, with both registering significant gains. Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers. Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode.”

See earlier post by NAM’s chief economist, Dave Huether.

Mixed Signals on Manufacturing Sector

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  • Factory orders drop 0.9 percent in March“: “WASHINGTON (AP) — Orders to U.S. factories fell a larger-than-expected 0.9 percent in March, while factory shipments dropped for a record eighth consecutive month. The report was further evidence of the severity of the recession.”
  • U.S. ISM Manufacturing Index Rises More Than Forecast“: “May 1 (Bloomberg) — Manufacturing in the U.S. shrank in April at the slowest pace in seven months after a collapse in inventories caused orders and production to steady…The Institute for Supply Management’s factory index rose to 40.1 last month, higher than forecast, from 36.3 in March.”

The Institute for Supply Management’s report for April is available here.