ISM: Manufacturing Activity Expanded at Fastest Pace in 16 Months in June

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The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) said that manufacturing activity grew at its fastest pace in 14 months. The composite index rose from 51.3 in May to 53.2 in June. Strong growth in new orders (up from 55.7 to 57.0) and production (up from 52.6 to 54.7) helped to boost the headline number by more than expected. Notably, exports (up from 52.5 to 53.5) also improved in this report, which was encouraging given recent struggles in increasing demand abroad. More importantly, this was the fourth consecutive month with manufacturing activity expanding, signaling some stabilization in the sector after five months in contraction in the months prior to that. Read More

ISM: Manufacturing Activity Expanded for the First Time since August

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The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) expanded for the first time since August. The composite index rose surprisingly well in this report, up from 49.5 in February to 51.8 in March. More importantly, new orders (up from 51.5 to 58.3) and production (up from 52.8 to 55.3) were both up sharply in March, with the demand figure at its highest level since November 2014. Exports (up from 46.5 to 52.0) also improved, shifting into positive territory in March for the first time this year. That was encouraging news, and it helps to illustrate the stabilization that we have seen in the manufacturing sector in recent data. To be fair, growth for manufacturers remains weaker-than-desired, with businesses continuing to cite a number of challenges for their firms. Yet, the sample comments tend to highlight the positive, noting activity picking up and sales improving.

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ISM: Strong Gains in the Manufacturing Sector in October

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The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) grew strongly in October, rebounding after a disappointing headline figure in September. The main index rose from 56.6 in September to 59.0 in October, back to where it had been in August. As such, the August and October readings were both the highest levels since March 2011, suggesting healthy gains in the sector as we move into the fourth quarter. Read More

ISM: Revised Data Point to a Lift in Manufacturing Activity in May

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The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) was originally report to have moved lower in May. The headline figure was said to have declined from 54.9 in April to 53.2 in May, rebuffing other sentiment surveys showing a rebound. Yet, later in the day, ISM announced that it had erred in its seasonal adjustment calculation, with May’s PMI value rising to 55.4 instead. As such, manufacturing activity has steadily risen in each month since January’s weather-related softness, with the PMI averaging 53.7 year-to-date. Still, this contrasts with an average of 56.3 from July and December 2013, suggesting that we still do not have the robust growth that we might prefer.

The sample comments note increased demand and “steady” business. Data for new orders (up from 55.1 to 56.9) and production (up from 55.7 to 61.0) were both higher. The output index’s figure marked the first time since December that the production measure exceeded 60. (It had exceeded 60 for five straight months at the end of last year.) On the hiring front, employment growth (down from 54.7 to 52.8) eased somewhat.

The one issue that tends to dominate many of the responses is prices. In fact, the index for prices of raw materials increased from 56.5 in April to 60.0 in May, back to where it was in February. This measure of pricing pressure has averaged 59.2 so far in 2014, up from 53.8 for 2013 as a whole. This information is consistent with other data showing producer prices accelerating of late.

In short, while manufacturing activity remains a mostly positive one, with manufacturers cautiously optimistic in their outlook. Yet, no one can dispute that economic growth has started the year off slower than we would like.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that this post was revised to reflect updated ISM data. 

ISM: Manufacturing Sentiment Picked Up Again in April

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The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) continued to move higher, recovering from weather-related softness in January. The overall PMI rose from 53.7 in March to 54.9 in April, its highest point so far in 2014. The sector continued to see modest growth in new orders (unchanged at 55.1), production (down slightly from 55.9 to 55.7), and exports (up from 55.5 to 57.0). One real positive was the increased pace of hiring, with the employment index jumping from 51.1 to 54.7.

The sample comments support the view that manufacturing activity has rebounded in the spring months. A fabricated metal products respondent said, “We think there is pent-up demand waiting for weather to break.” Several others focused on improvements in sales, employment, and export growth. Yet, the survey participants also noted some challenges, including difficulties hiring skilled workers, weak demand from Europe, and worries stemming from political turmoil in Russia and the Ukraine.

Overall, manufacturing confidence is rising, building off of uncertainties earlier in the year. Still, it is important to note that activity remains below the torrid pace seen at the end of last year. The ISM PMI values averaged 56.3 in the second half of 2013, with new orders and output averaging 61.8 and 62.6, respectively. As such, there is still room for improvement. Fortunately, manufacturing demand and production appear to be moving back in the right direction.

Chad Moutray is the chief economist, National Association of Manufacturers. 


ISM: Manufacturers Have Begun to Move Beyond Winter Storms

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The Institute for Supply Management’s manufacturing purchasing managers’ index edged slightly higher, up from 53.2 in February to 53.7 in March. This reflects modest gains in overall manufacturing activity since recent weather-related weaknesses. The good news was that production (up from 48.2 to 55.9) began expanding again. The pace of new orders (up from 54.5 to 55.1) also picked up a little, including export sales (up from 53.5 to 55.5).

The sample comments continue to note the negative impact of weather. A food and beverage leader put it bluntly when they said, “We need spring.” Others have begun to move beyond the winter struggles. For instance, a petroleum and coal products manufacturer said, “Business beginning to heat up, along with the weather.” Others noted their increasing optimism. This included the transportation equipment respondent who answered, “Business is good, and we are optimistic that orders will continue to come in at a decent pace.”

Hiring growth remains soft (down from 52.3 to 51.1), and sentiment continued to be lower than just a few months ago. The average PMI value from July to December of last year, for instance, was 56.3, with new orders and production averaging 61.8 and 62.6 during that time frame, respectively. Another positive was that the manufacturing sector has now expanded for 10 straight months.

Overall, manufacturers are cautiously optimistic about future sales and output, and there is hope that the momentum seen in the second half of 2013 return to produce strong returns for 2014. While growth in manufacturing activity remains below where it was at the end of last year, it appears that the drag from winter storms has begun to fade.

Chad Moutray is the chief economist, National Association of Manufacturers.


Monday Economic Report – February 10, 2014

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Here is the summary for this week’s Monday Economic Report:

Hiring in the manufacturing sector continued to expand in January, averaging 15,500 per month since August. This uptick in employment for manufacturers has corresponded to the acceleration in product demand and production in the second half of 2013, with cautious optimism for 2014. However, the overall jobs numbers were disappointing for the second straight month. Nonfarm payrolls grew by just 75,000 and 113,000 in December and January, respectively, which was well below the consensus expectation of 175,000 and the 2013 average monthly gain of 193,500.

Some of the releases out last week show the negative impact that weather has had on activity. For instance, new factory orders declined 1.5 percent in December, with broad-based weaknesses in the durable goods sector pulling the data lower. Shipments were also down. Likewise, manufacturing construction spending fell 5.1 percent in December, which was notable because of a mostly upward trend from June to November. Overall construction activity edged marginally higher in December, boosted by strong residential construction activity, but nonresidential and public spending was down.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) report showed a considerable decline in manufacturing sentiment, down from 56.5 in December to 51.3 in January. The biggest declines were in new orders, output and employment, but the pace of export orders was off only slightly. The pace of export orders was off only slightly. This indicates that domestic factors were the main contributors of the decline.

Meanwhile, the U.S. trade deficit rose from $34.56 billion in November to $38.70 billion in December, but the deficit narrowed for 2013 as a whole. Petroleum was a major factor in the smaller trade deficit last year, with increased petroleum exports and fewer imports. Unfortunately, manufactured goods exports did not increase as much last year as we would have preferred, up just 2.4 percent in 2013 versus 5.7 percent in 2012. We hope stronger global economic growth will produce improved manufactured goods exports in 2014.

In other news, the Congressional Budget Office released its 10-year budget and economic outlook. The deficit will be $514 billion in fiscal year 2014, an improvement from the more than $1 trillion deficits in fiscal years 2009–2012 and the $680 billion deficit in fiscal year 2013. The report shows the growth of mandatory spending rising from $2.03 trillion in fiscal year 2013 to $3.74 trillion in fiscal year 2024. Because of this, federal deficits will start to rise again beginning in fiscal year 2017, with deficits exceeding $1 trillion in fiscal year 2022. With such facts, it should not be a surprise that 86.3 percent of manufacturers want policymakers to find a long-term federal budget deal that tackles the debt and deficit, including reining in entitlements.

This week, we will get new industrial production data on Friday. The last report showed manufacturing output rising at an annualized 4.2 percent rate in the second half of 2013, but we will see if the data show production easing somewhat in January due to weather or other factors. The consensus expectation is for modest output gains of roughly 0.3 percent. Other highlights will be the latest figures on consumer confidence, job openings, retail sales and small business optimism.

Chad Moutray is the chief economist, National Association of Manufacturers.

cbo entitlement spending - feb2014

ISM: Growth in Manufacturing Activity Slowed Considerably in January

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The Institute for Supply Management (ISM) said that the purchasing managers’ index (PMI) slowed considerably to begin the new year, down from 56.5 in December to 51.3 in January. This report mirrors other recent releases which have shown weaknesses, with weather and the holidays dampening demand and output. Indeed, a couple of the sample comments referenced the poor weather conditions as a contributing factor.

The slower pace of growth in January came after five months of significant strength in manufacturing activity, particularly for sales and production, both of which had index values over 60 from August to December. On the positive side, the manufacturing sector has now expanded for eight straight months, having recovered from a number of challenges last spring. To the extent that weather was the main factor in the lower figures in January, we would hope to see better data in February and beyond. In fact, manufacturers remain “cautiously optimistic” overall about 2014, as seen in the comments provided by ISM and in other reports.

Looking specifically at the January data, the various components decelerated across-the-board. The index for new orders fell sharply from 64.4 in December to 51.2 in January, its slowest pace since last May. Production (down from 61.7 to 54.8), exports (down from 55.0 to 54.5), and employment (down from 55.8 to 52.3) were also lower. The slight drop in export orders suggest that the decline in sales were mainly attributable to domestic factors, with modest gains in international orders still prevalent. That is a good sign.

There continues to be modest hiring growth, but with a persistent hesitancy on the part of some firms to add workers. It will be interesting to see how the easing in employment growth seen in the PMI data translated into new manufacturing hires nationally, with the Bureau of Labor Statistics releasing new jobs data on Friday. Similar to the ISM data, manufacturing employment growth ended 2013 on a strong note, adding 16,000 net new workers on average between August and December.

The other notable element was the acceleration in pricing pressures. The index for raw material costs rose from 53.5 to 60.5, its highest level since February 2013. While inflation remains in-check for now, this figure suggests that some costs have begun to pick up.

In general, this report shows that manufacturers began 2014 with some softness, with winter weather dampening both sales and output. Overall, manufacturing activity was up strongly in the second half of 2013, and we hope that the January numbers prove to be just a respite in the rebound that we had been witnessing.

While we hope that the weaknesses seen in the ISM manufacturing report are temporary, these data also highlight some fragility of the current economy. With that in mind, manufacturers feel that it will be important for policymakers to adopt pro-growth measures that will allow the sector to flourish and to return us to the growth that we had been seeing a year’s end.

Chad Moutray is the chief economist, National Association of Manufacturers.


ISM: New Orders Continue to Grow Strongly in December, with Some Easing in Other Measures

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The Institute for Supply Management (ISM) said that the purchasing managers’ index (PMI) eased slightly from 57.3 in November to 57.0 in December. Despite the lower figure, the underlying report was a positive one overall. The ISM data has reflected expanding manufacturing activity for seven consecutive months. Moreover, the manufacturing PMI measures averaged 56.3 in the second half of 2013, a nice improvement from the 51.5 average seen in the first half of the year.

One of the strongest elements in the ISM manufacturing report continues to be the sales component. The index for new orders has exceeded 60 for five straight months, indicating an extremely healthy pace for sales growth. The new orders index rose from 63.6 in November to 64.2 in December. This increase appears to be primarily from domestic sales. The index for export orders dropped from 59.5 to 55.0 for the month, suggesting some easing in our sales overseas.

The production index also reflects strong growth, albeit with a marginal decline in its pace in December (down from 62.8 to 62.2). It averaged 61.7 from July to December, far exceeding the 52.6 average experienced from January to June.

Looking at other measures, hiring appears to be moving in the right direction, with modest employment growth overall. The employment index increased from 56.5 to 56.9. This was the fastest pace since April 2012. At the same time, inventory growth moved negative once more, down from 50.5 to 47.0, the first decline in stockpiles since August.

In general, this report shows that manufacturing activity in the U.S. grew strongly in the second half of 2013, with overall new business up significantly. The indices for new orders and production continue to reflect healthy increases, and manufacturers tend to be mostly upbeat about future activity, as evidenced by other indicators. Moving forward, it will be important for policymakers to keep the momentum going by considering pro-growth measures that will allow the sector to flourish and build on the progress seen over the past few months.

Chad Moutray is the chief economist, National Association of Manufacturers.


Monday Economic Report – December 9, 2013

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Here is the summary for this  week’s Monday Economic Report:

The Federal Reserve Board’s Beige Book, released last week, suggested that the U.S. economy was expanding at a modest to moderate pace nationally. Other data were even more encouraging, including strong numbers for economic growth, manufacturing activity and overall hiring. For instance, the Bureau of Economic Analysis reported that real GDP increased by 3.6 percent during the third quarter, up from its previous estimate of 2.8 percent. This was the fastest pace of growth since the first quarter of 2012. One drawback in the report was that much of the increase stemmed from the restocking of inventories—something that will likely not be replicated in the current quarter. Yet, consumer and business spending also made significant contributions to the economy, with relatively healthy gains for goods exports and improvements in the financial positions of state and local governments.

The stronger domestic and global economy has helped buoy the manufacturing sector, with stronger sales and output seen since the beginning of the third quarter. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) has soared to 57.3, its highest point since April 2011. This was the fourth straight month with the new orders index greater than 60.0, indicating very robust growth in sales. More importantly, export orders also had healthy increases, up from 57.0 to 59.5. With manufactured goods exports up only 1.9 percent year-to-date, the fact that our overseas sales were beginning to pick up was welcome news. Overall, the ISM report—while much more optimistic than other sentiment surveys—mirrors the mostly upbeat outlook within the sector. Yet, sample comments also note downside risks associated with government uncertainty—a lingering issue that has dampened demand on and off over the past few years.

Friday’s jobs numbers were another boost for the U.S. economy. Manufacturers added 27,000 net new workers in November, the most in any month since March 2012. Moreover, it appears that businesses have begun to accelerate their hiring in recent months. The average monthly job gain over the past four months (August to November) was 16,500, a definite sign of progress from the average decline of 8,000 in the five months prior to that (March to July). A similar pattern exists for nonfarm payroll workers, with the average over the past four months jumping to 204,000. The unemployment rate fell to 7.0 percent in November, a rate not seen since November 2008. Yet, despite the strong employment gains, hiring plans remain mostly modest at best over the next year, and manufacturers have accounted for just 3.3 percent of the net new job gains over the past 12 months.

Consumers have seen their spirits lifted recently, particularly as we move further away from the government shutdown. Preliminary data from the University of Michigan and Thomson Reuters indicate that consumer confidence has returned to where it was before the budget impasse, even as lingering anxieties persist. (Sentiment remains lower than it was over the summer.) As their attitudes about the economy have improved, Americans have also opened their wallets, albeit somewhat tepidly. Personal spending rose modestly in October, with higher purchases for both durable and nondurable goods. Perhaps more timely, “Cyber Monday” retail sales set a new record, even as overall spending gains have been mixed for the holidays.

Today, we will release the results of the latest NAM/IndustryWeek Survey of Manufacturers. The report captures the mixed nature of the current economic landscape, which is both hopeful and cautious at the same time. The percentage of respondents who were positive about their own company’s outlook continued to edge higher, up from 76.1 percent in September to 78.1 percent in December. Yet, many subcomponents reflected some easing in activity expected over the next year. For example, respondents now anticipate sales growth of 3.0 percent in the next 12 months, down from 3.3 percent in September’s survey. Nonetheless, the report also found that manufacturing production should accelerate over the next two quarters, with the rising stock market and rebounding housing market helping to drive these estimates higher. The NAM/IndustryWeek survey also includes a number of special questions on the Affordable Care Act and the ongoing budget negotiations.

Other economic reports out this week include the latest numbers for job openings, producer prices, retail sales, small business confidence and wholesale trade.

Chad Moutray is the chief economist, National Association of Manufacturers.

contributions to real gdp - dec2013