Tag: new orders

California’s Manufacturing Sector Expected to Improve in the Second Quarter

Manufacturing activity in California is expected to improve in the second quarter, according to the A. Gary Anderson Center for Economic Research at Chapman University. The composite purchasing managers’ index (PMI) increased from 56.2 in the first quarter (January) to 58.5 in the second quarter (April). Indeed, manufacturers largely anticipate increased paces for production (up from 60.5 to 64.4) and new orders (up from 55.8 to 60.9). Roughly half of the respondents in the survey said that they thought sales and output would be higher in the second quarter.

Employment growth remained soft (down from 55.6 to 53.3). Looking at the specific responses, 24.1 percent felt that their employment levels would increase in the second quarter, with 11.4 percent saying that it would be lower. However, the bulk of responses (64.5 percent) said that their hiring levels would be unchanged for the quarter. One positive, of course, was that net hiring was positive, albeit only modestly so.

The PMI for nondurable goods (up from 56.7 to 58.2) advanced more than the one for durable goods industries (up from 58.1 to 58.3), which increased only marginally. Each was lower than it was one year ago, however, when durable and nondurable goods firms had index values of 60.3 and 60.9, respectively.

Overall, these data show that manufacturers in California see demand and production picking up this quarter. That is a good thing, but it is also worth noting that the pace of growth remains below the pace observed in mid-2013. Moreover, manufacturers in Orange County were less positive this quarter than in the last (down from 64.1 to 58.5) on slower new order and employment growth.

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

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ISM: Manufacturers Have Begun to Move Beyond Winter Storms

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.

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After Slowing in February, Manufacturers in Texas Saw a Pick Up in Activity in March

The Federal Reserve Bank of Dallas said that manufacturing activity picked up in March, rebounding from the easing experienced in February. The index for a company’s own outlook increased from 3.4 in February to 9.1 in March, with the percentage of respondents saying that their outlook improved for the month rising from 17.2 percent to 22.6 percent. In general, manufacturers were somewhat more optimistic in March, and looking at a longer-run trend, businesses have reported expanding levels of activity for 11 straight months.

The underlying data tend to support the acceleration in activity for the month. For instance, the index for new orders rose from 9.5 to 14.7. Just over 31 percent of those taking the survey said that their sales were higher in March, with 16.7 percent reporting declines. Other indicators also reflected stronger growth, including production (up from 10.8 to 17.1), capacity utilization (up from 9.1 to 13.1), shipments (up from 13.3 to 19.5), employment (up from 9.9 to 15.0), and capital expenditures (up from 7.0 to 14.1).

Some of these data points were at levels not seen in a while. This was a sign that some of the weather-related weaknesses that were pervasive in the February report have started to dissipate. For example, the hiring data were at their fastest pace since June 2012, with almost one-quarter of respondents saying that they added workers in this survey. At the same time, the production index was at its highest point in 9 months, with the shipment measure at a four-year peak.

Looking ahead six months, Texas manufacturers remain positive about future levels of activity. For example, over half of the respondents anticipate higher sales over the coming months. Similar findings can be noted for production, capacity utilization, shipments, employment, and capital spending over the next six months. The sample comments mostly tend to support this rather upbeat assessment, with some respondents citing regulatory, pricing pressure, workforce, and foreign competition concerns. As such, it is clear that manufacturers are cautiously optimistic about activity moving forward, even as some anxieties persist.

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

 

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Kansas City Fed: Manufacturing Activity Picked Up in March

The Kansas City Federal Reserve Bank said that manufacturing activity picked up in March, expanding for the third straight month. The composite index of general business activity rose from 4 in February to 10 in March. This was the highest point since February 2012. The largest increase was in the production index, which increased from 3 to 22. Indeed, the percentage of survey respondents who said that their output had declined in the month fell from 28 percent in February to 11 percent in March. This improvement was likely the result of better weather, which caused a number of delays in production in the previous report.

In terms of other indicators, there was also notable progress for new orders (up from 5 to 13), shipments (up from 10 to 16), and exports (up from -1 to 6). As with the production index above, the shifts were largely due to fewer people saying that there were decreases. For instance, 39 percent of those taking the survey said that their new orders had increased in the month (up from 35 percent last month); whereas, 14 percent noted decreased sales (down from 24 percent).

Hiring was one area where weaknesses remain. The index for the number of employees declined has declined from 11 in January to 3 in February to zero in March. Two-thirds of respondents said that their employment levels were unchanged, with the other answers nearly split equally. Moreover, looking ahead six months, employment growth was also only barely positive on net, unlike in several other regional surveys.

Fortunately, other forward-looking measures are more upbeat. Nearly half of those taking the survey anticipate increased production, shipments, and new orders over the next six months. Roughly one-quarter of survey participants said that they plan to increase capital spending, with 15 percent anticipating declines. One other finding that was surprisingly soft was export growth, with just 11 percent of Kansas City Fed manufacturers saying that they expect increased international sales. Hopefully, this figure improves in coming months.

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

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Richmond Fed: Manufacturing Activity Contracted Once Again in March

The Richmond Federal Reserve Bank said that manufacturing activity in its District has contracted for two consecutive months. The composite index declined slightly from -6 in February to -7 in March, both of which represent a dramatic shift from the expansion noted in January (12). As such, respondents to the Richmond Fed survey did not observe the rebound from weather-related softness that was noted in similar surveys from the New York and Philadelphia Federal Reserve Banks.

Instead, growth continued to be lackluster, with new orders (unchanged at -9), shipments (down from -6 to -9), and capacity utilization (down from -7 to -14) all declining for the second straight month. Employment levels were flat. According to the Richmond Fed’s report, “A participant commented that weather has `wreaked havoc’ on demand for the past two months, but he anticipated that his company will be very busy once the weather improves.”

Indeed, manufacturers in the region remained mostly upbeat about the future despite the current weaknesses. The index for expected new orders six months from now improved from 15 in February to 30 in March, returning to where it was in January. Similar rises were seen in the forward-looking measures for shipments (up from 17 to 31), capacity utilization (up from 12 to 29), employment (up from 12 to 22), and capital expenditures (up from 9 to 18). The employment figure was notable because it suggested that the pace of hiring was now at its fastest pace since December 2010.

The prices paid for raw materials edged slightly lower for the month, down from 1.19 percent at the annual rate in February to 0.85 percent in March. Pricing pressures six months from now also eased, down from 2.25 percent to 1.81 percent.

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

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Markit: Chinese Manufacturing Activity Has Contracted in Each Month So Far in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ index (PMI) continued to decelerate, down from 48.5 in February to 48.1 in March. The index has contracted for three consecutive months, with March’s pace being the slowest since July. As noted in the most recent Global Manufacturing Economic Update, these data mirror the easing that we have seen in other indicators, including industrial production, fixed asset investment, and retail sales. As such, they also suggest that real GDP might fall below the 7.7 percent rate seen in the fourth quarter.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on April 1. The March data reflect decelerating levels of activity for new orders (down from 48.1 to 46.9) and output (down from 49.2 to 47.3). On the positive side, export sales shifted from contraction (49.3) to a slight expansion (51.4), and employment growth declined at a slower rate (up from 46.9 to 49.3).

Hongbin Qu, HSBC’s China Chief Economist and the Co-Head of Asian Economic Research, said, “Weakness is broadly-based with domestic demand softening further. We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.”

Meanwhile, Eurozone manufacturers have seen expanding levels of activity for nine straight months, with continued modest growth in March. Nonetheless, the Markit Flash Eurozone Manufacturing PMI edged slightly lower, down from 53.2 in February to 53.0 in March. The underlying data were mixed. Sales growth picked up marginally from 54.1 to 54.4, but production (down from 55.5 to 55.4), exports (down from 54.7 to 53.6), and hiring (down from 50.4 to 50.3) moved slightly lower. Still, growth in output and new orders remained relatively healthy, even with some easing in many of the key figures.

One of the lagging economies in Europe has been France, which had contracting levels of manufacturing activity in all but 2 of the past 27 months. The good news was that French manufacturing sentiment turned positive once again in March, with the Markit Flash France Manufacturing PMI up from 49.7 to 51.9. Activity was up across the board, and growth in new orders (up from 46.6 to 53.3) were at their highest level since June 2011. Elsewhere in Europe, German manufacturing activity slowed a bit, down from 54.8 to 53.8. Despite the deceleration, output (down from 57.6 to 57.0) and sales (down from 57.2 to 55.6) growth remained strong.

Likewise, the Markit Flash U.S. Manufacturing PMI moved lower for the month, down from 57.1 to 55.5. February’s figure reflected the strong rebound from January’s weather-related softness due to severe winter storms. Much like the European data, the larger story is the continued modest growth for manufacturers in the U.S. market. For instance, new orders (down from 58.8 to 58.0) continued to grow strongly even with a little easing for the month, and production (up from 57.2 to 57.5) and exports (up from 50.9 to 51.0) had a slightly faster pace of growth.

Employment growth (down from 54.0 to 53.9) was essentially unchanged for the month despite edging a bit lower for the month. After hiring nearly stalled last June, manufacturers have continued to add to their workforces, albeit at a modest pace.

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

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Philly Fed Reported a Rebound in Manufacturing Activity in March

The Federal Reserve Bank of Philadelphia said that manufacturing activity rebounded in March from weather-related weaknesses the month before. The Business Outlook Survey’s composite index of general business activity shifted from contraction in February (-6.3) to a decent expansion in March (9.0). The percentage of respondents who said that conditions had worsened fell from 31.4 percent in February to 24.2 in March, with one-third of those taking the survey saying that business was better in the latest month.

Taking the February data out of the analysis, manufacturers have been positive in their outlook since June, mirroring the upturn that we have seen in the national economy in the second half of last year. The average composite index measure over the past 10 months (including February) was 10.9, suggesting that manufacturers in the Philly Fed region have continued to grow at a pretty reasonable rate.

In March, the index for new orders increased from -5.2 to 5.7, with 31.8 percent of respondents saying that their sales were higher in the month. This was up from 23.9 percent who said the same thing in February. Similar findings were observed for shipments (up from -9.9 to 5.7) and the average workweek (up from -7.0 to 3.1). One area where there was a bit of weakness was hiring. The pace of employment growth eased slightly (down from 4.8 to 1.7), but remained positive. Two-thirds of manufacturers completing the survey said that their employment levels were unchanged.

Fortunately, the manufacturing community in the Philadelphia Fed district remains mostly positive about the coming months. Nearly half of them said that they expect sales and shipments to be higher six months from now, with just over one-third expecting to add workers and increase capital spending.

Moreover, when asked about capital expenditures for 2014, manufacturers mostly anticipated increased levels of spending on non-computer equipment (a net percentage of 17.1 percent), software (14.3 percent), computer and related hardware (12.9 percent), structures (5.7 percent), and energy-saving equipment (2.9 percent). Half of the respondents said that they would increase capital spending because of the pickup in sales, with the need to replace outdated capital equipment (47.1 percent) and information technology equipment (41.2 percent) closely following.

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

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Empire State Survey: Manufacturing Activity Picked Up Slightly in March

Sentiment edged somewhat higher in March, according to the Empire State Manufacturing Survey from the New York Federal Reserve Bank. The composite index of general business conditions rose from 4.5 in February to 5.6 in March. Nonetheless, overall optimism has taken a hit over the past couple months, mostly due from poor weather conditions, with the index down from 12.5 in January.

Weather wreaked havoc in February, with the new orders index slightly contracting (-0.2). In March, sales shifted to modest gains once again (3.1), which was a good sign. Just over 30 percent of respondents said that their new orders increased in the month, with 27.3 percent noting declines. Shipments (up from 2.1 to 4.0) and the average workweek (up from 3.8 to 4.7) also improved. In addition, pricing pressures for raw materials decelerated a bit (down from 25.0 to 21.2), with 74.1 percent saying that their costs were unchanged in March.

Meanwhile, the pace of hiring slowed somewhat (down from 11.3 to 5.9), but employment growth has been positive for three straight months with mostly modest gains. Still, 68.2 percent of those taking the survey said that hiring was constant for the month.

Looking ahead six months, manufacturers in the New York Fed district continue to be mostly optimistic, albeit less so than last month. Nearly 48 percent of respondents anticipate increased new orders in the coming months, down from 55.0 percent who said the same in February. Similarly upbeat assessments were seen for shipments, with a generally positive outlook for modest growth in both hiring and capital spending. Indeed, these data support the view that the current weaknesses will be temporary, particularly if the more-positive view of future growth comes to fruition.

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

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New Factory Orders Were Down for the Second Straight Month in January

The Census Bureau said that new factory orders declined for the second straight month, down 2.0 percent and 0.7 percent in December and January, respectively. This was not a surprise, particularly given the already-released estimates for durable goods orders and the recent challenges with weather. Much of the decline in January stemmed from reduced auto and defense aircraft sales. As such, new factory orders excluding transportation increased 0.2 percent, indicating a very modest rebound from the 0.1 percent decline the month before.

New durable and nondurable manufactured goods orders were both lower in January, down 1.0 percent and 0.4 percent, respectively. With that said, as noted above, durable goods excluding transportation rose 0.1 percent, indicating broader strength than the headline figure might suggest. Areas of strength in the durable goods sector included fabricated metal products (up 7.4 percent) and computers and electronics (up 3.7 percent). But, these were somewhat offset by reduced new orders for furniture and related products (down 3.6 percent), electrical equipment and appliances (down 2.2 percent), primary metals (down 1.2 percent), and machinery (down 0.7 percent).

Meanwhile, manufactured goods shipments were also lower for the second consecutive month, with declines of 0.3 percent in both December and January. Durable goods shipments were off by 0.3 percent, with nondurable goods down 0.4 percent. Negative weather influences can be seen in this data, particularly to the extent that consumers were not able to get the stores to make purchases.

Sectors with the largest declines in monthly shipments included textile products (down 11.4 percent), textile mills (down 3.8 percent), machinery (down 2.9 percent), automobiles (down 1.8 percent), apparel (down 1.0 percent), and chemical products (down 1.0 percent). In contrast, there were increased shipments observed in the following areas: electrical equipment and appliances (up 1.5 percent), nonmetallic mineral products (up 1.3 percent), food products (up 1.2 percent), computers and electronics (up 0.7 percent), and wood products (up 0.7 percent).

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

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ISM: Production Contracted for the First Time since May, but Orders Pick Up

The Institute for Supply Management (ISM) provided a mixed view of the current state of the manufacturing sector.  First and foremost, it found that production contracted for the first time since May (down from 54.8 in January to 48.2 in February). This was a sharp contrast to strong growth in output observed from August to December, with the production index averaging 62.7 over that time frame. In addition, stockpiles of inventories also rose (up from 44.0 to 52.5) in February. Poor weather conditions have reduced output and overall activity over the past two months.

A few of the sample comments spoke to the negative impact of weather. A petroleum and coal products respondent said, “Bad weather hampered logistics across the country.” Meanwhile, an apparel manufacturer commented about reduced orders due to winter storms, with “raw material disruptions” and “back-ups at the ports” cited by a business leaders from the chemical industry.

Despite these challenges, the report also suggested that sentiment has begun to bounce back. The purchasing managers’ index (PMI) rose from 51.3 to 53.2. While this remains below the 56.5 seen in December, it was a step in the right direction, giving manufacturers some hope. Indeed, the pace of new orders picked up, increasing from 51.2 to 54.5. This improvement was in domestic sales, with exports easing slightly for the month (down from 54.5 to 53.5).

On the employment front, the pace of hiring was unchanged in February from January’s 52.3. This indicated modest growth in hiring, but below the stronger rate observed from August to December (which averaged 54.6). With new jobs numbers out on Friday for February, this could suggest a slight slowdown from the 15,500 average employment increase for manufacturers observed over the prior six months.

In short, weather has wreaked havoc for manufacturers this winter, negatively impacting sales, production, and shipments. The ISM data confirm this, with output shrinking for the first time in nine months in February. Yet, this report also indicates that new orders have begun to accelerate, an encouraging sign. Leaders in the manufacturing sector continue to be cautiously optimistic about growth in 2014, particularly with the strong momentum seen at the end of 2013. Hopefully, the softness seen of late will prove to be temporary, particularly to the extent that it was weather-related.

At the same time, the recent weakness also reminds us how difficult it is for strong growth to be maintained. Friday’s downgrade in real GDP was another reminder of this. For that reason, the NAM continues to push for pro-growth measures that will lift the economy and help to give additional momentum for manufacturers and the rest of the business community.

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

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