The widely watched Purchasing Managers Index (PMI) released today by the Institute for Supply Management shows manufacturing output is expected to continue to increase, but probably at the relatively moderate rate of the last few months.

The March PMI index stood at 61.2, slightly lower than the February index value of 61.4. Any value over 50 indicates that more manufacturers are expecting an increase than a decrease, and the March index figure is consistent with the generally 6-8 percent annual rate of manufacturing increase, in current dollars, implied by a variety of statistical indicators.

While still portending an increase, the fact that the index declined slightly from February and stood only 0.4 points higher than January does not suggest an accelerating rate of manufacturing growth in the near term. This observation is consistent with the manufacturing employment data released today by Department of Labor, which show that manufacturing employment increased in March, but by a smaller amount than in January or February.

The new export orders data from the Institute for Supply Management bear watching, for that index slipped sharply to 56.0 from February’s figure of 62.5. The export index appears generally more volatile than the overall PMI index and has been subject to rather wide month-month swings, so one month is not necessarily indicative. If the index continues to show softness, however, this could indicate a slowdown is coming in exports. As exports have been the fastest-growing part of U.S. factory shipments, this would be a worrisome development.

This report from Fox Business, “The Economy’s Lone Strength: Manufacturing?,” capably describes manufacturing’s vitality and importance in the current economic recovery.

“Manufacturing has a bum rap,” said Frank Vargo, vice president for international economic affairs with the National Association of Manufacturers. “Manufacturing is not on its last legs. It’s not at its peak, but it’s growing faster than the rest of the economy and it’s leading the economy.”

Consider some numbers from the U.S. Department of Commerce: 2010 factory shipments totaled $5 trillion, up 9% from $4.6 trillion in 2009; the value of pesticides, fertilizers and other agricultural chemicals shipped from U.S. factories rose 44% in 2010 from 2009; the value of iron and steel mill products rose 42% from a year earlier; and the value of construction machinery increased 35% year over year.

What’s more, Vargo noted that in 2010 the average U.S. factory worker could produce 40% more than the same worker did a decade ago. “I mean, that’s productive,” he said.

The story’s not a rebuttal of Stephen Moore’s analysis below, but it fills out the picture. Employment numbers are not the only measure of economic strengths or weaknesses.

Also….

ThomasNetNews.com, “Manufacturers Optimistic About Business Outlook and Hiring“:

Manufacturers have grown noticeably more positive about near-term business activity, with major improvements in the outlook for employment conditions, according to new findings.

Business prospects for the year ahead have strongly improved among manufacturers worldwide, with United States manufacturing executives forecasting particularly promising near-term results, new survey findings suggest. As revenues and profits are expected to rise over the next 12 months, manufacturers also anticipate that hiring will follow.

In KPMG International’s latest Global Business Outlook survey, released this week, 68 percent of U.S. manufacturing executives said they expect improved business activity over the next 12-month period, up from 57 percent who said the same in the previous survey in October. Sixty-five percent forecast higher revenues, compared with 52 percent in October, while 62 percent believe profits will increase, up from 47 percent in October.

Also, Financial Times, “Survey finds global business optimism.”

Wall Street Journal, “U.S. Manufacturing Posts Strong Expansion“:

Manufacturing activity in the U.S. turned in its best performance since May 2004 last month, as factory operators faced a big jump in raw materials prices, raising fears about rising inflation in the U.S….

On Tuesday, the Institute for Supply Management’s manufacturing index moved to a very strong 61.4 from 60.8 in January. The overall index had been expected to come in at 60.9. Readings over 50 indicate growth.

According to the February 2011 Manufacturing ISM Report On Business, “Economic activity in the manufacturing sector expanded in February for the 19th consecutive month, and the overall economy grew for the 21st consecutive month.”

Sectorally…

Of the 18 manufacturing industries, 14 are reporting growth in February, in the following order: Apparel, Leather & Allied Products; Petroleum & Coal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Machinery; Chemical Products; Fabricated Metal Products; Computer & Electronic Products; Textile Mills; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Paper Products; Wood Products; and Miscellaneous Manufacturing. The four industries reporting contraction in February are: Plastics & Rubber Products; Primary Metals; Nonmetallic Mineral Products; and Furniture & Related Products.

See also AP, “Manufacturing grew at fast pace.”

Then again…

• Wall Street Journal, “Oil’s Rise Threatens Economic Growth“
• Globe and Mail, “Only a recession stands in the way of $200 oil“
• Milwaukee Journal Sentinel, “Oil prices near a dangerous point for economy“

The Institute for Supply Management (ISM) reported today that its closely-watched manufacturing index fell to 54.4 in September from 56.3 in August.

Manufacturing expanded in September at the slowest pace in 10 months, adding to the mounting evidence that the manufacturing sector is slowing after leading the recovery for the past year. The ISM manufacturing index has fallen four out of the five months since April, and now stands at the lowest level since last November, a clear sign that the recovery continues to struggle.  Transition from economic growth supported by inventory rebuilding and temporary surges from fiscal stimulus to a self-sustaining recovery is proving to be rocky.  The fact that most of the components of today’s report, such as new orders, production, employment and exports, all moderated last month signals that the slowdown in the manufacturing recovery will spill into the fourth quarter as well and that the outlook for jobs remains gloomy.

Today’s manufacturing report by the Institute for Supply Management shows that the manufacturing recovery remained strong in May. The overall index edged down slightly from 60.4 in April to 59.7 in May, and there were no significant movements in most of the survey components such as production or orders. The recent upturn in the housing activity due to the expiration of the homebuyer tax credit in April is having a positive impact on some industries such as wood products, electrical equipment and appliances, all of which reported increasing orders and production in today’s report. However, when the effects of the credit wear off in the coming months, the manufacturing expansion will likely decelerate a bit.

The rise in the employment component of today’s report to 59.9 – the highest level in six years – is a hopeful sign that this Friday’s employment report will include a fifth consecutive increase in manufacturing employment in May. At the same time, the fact that the export component increased to 62 – the highest level in two decades – is encouraging and shows that exports are continuing to lead the expansion. This is good news for manufacturers since manufacturing dominates U.S. exports (59 percent), and more than a quarter of manufacturing employment is supported by exports. Looking ahead, we will be watching exports for any spillover effects of the European debt crisis into the U.S. economy.

The Institute for Supply Management’s Non-Manufacturing Report on Business released Monday prompted reporting on manufacturing’s importance.

Bloomberg, “U.S. Economy: Services Expand by Most Since May 2006“: “Service industries expanded in March at the fastest pace since May 2006, indicating the U.S. recovery is spreading beyond manufacturing and starting to create jobs.”

Previously …Sean Silverthorne, The View from Harvard Business blog, “Who Needs Manufacturing? Guess What’s Pulling Us Out of Recession”

Even more previously…Bloomberg, “Japan Manufacturers Least Pessimistic Since 2008“: “April 1 (Bloomberg) — Japan’s largest manufacturers became the least pessimistic about the economy since 2008 as a global rebound drove demand for exports.”

These historic time frames are getting a little short. What’s next? “France’s manufacturers reported being the most optimistic about industry growth since Monday, but they had had a rough weekend.”

The pace of manufacturing growth in February was slower than in the previous month and fell short of expectations according to today’s Report on Business from the Institute for Supply Management (ISM). Severe winter weather likely affected last month’s manufacturing performance. Therefore, next month’s March report will be critically important to determine if a slowdown is truly emerging for manufacturers.

On a positive note, increases in exports continue to help drive production gains, along with slower cutbacks of inventories. While the employment measure has remained above the growth threshold level of 50 for three consecutive months, it will have to remain at this level for at least several months before a widespread upturn in manufacturing employment can be expected. Looking ahead, hiring is likely to remain subdued until the second half of the year when a stronger expansion is expected as consumer and business confidence pick up.

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.

From Reuters, reporting on the ISM’s report showing an expansion of manufacturing in August for the first time in 18 months, “U.S. manufacturing in recovery mode, demand a worry“:

While the recession in the broader economy may well be over, unemployment is likely to continue to mount for several months, adding to the stress in household finances and undercutting consumer spending, usually the main driver of the economy.

“Recovery is going to be modest for the next half year. I don’t think you will see an upturn in consumer spending until the labor market recovers, which will be sometime mid-next year,” said David Huether, chief economist at the National Association of Manufacturers.

New York Times, “Manufacturing Grows After 18 Weak Month“:

Companies that make textiles, paper products, computers and electronics, appliances and chemicals were among 11 industry groups that said their business had grown in August. They said new orders were flowing in, production was ticking up and their prices were rising. “It is a big deal,” said John E. Silvia, chief economist at Wells Fargo. “It does suggest that manufacturing is recovering.”

Traveling across the country Saturday, we had the opportunity to read local newspaper stories reacting to the ISM’s December Manufacturing Report. Grim.

AP national story, and the New York Times writes, “Manufacturing Reports Show Depth of Global Downturn.” Grim.

Creighton University’s Ernie Goss uses the ISM methodology to rank the economies midwestern states, so here’s that story, “Survey: Recession will worsen in the months ahead,” and the sidebar,”Mid-America survey state-by-state glance.” Grim.

But then, instead of grimmer, a glimmer. From the New York Times, “Some Forecasters See a Fast Economic Recovery“:

In the midst of the deepest recession in the experience of most Americans, many professional forecasters are optimistically heading into the new year declaring that the worst may soon be over.

For this rosy picture to play out, they are counting on the Obama administration and Congress to come through with a substantial stimulus package, at least $675 billion over two years.

They say that will get the economy moving again in the face of persistently weak spending by consumers and businesses, not to mention banks that are reluctant to extend credit.

Even with the conditions, we’ll take the offering of optimism.