Markit said that manufacturing activity in February continued to expand, but the pace of new orders slowed somewhat from January. The Flash Manufacturing Purchasing Managers’ Index (PMI) for the United States declined from 55.8 to 55.2, suggesting a marginal change in the overall picture. The good news is that output appears to be recovering strongly, up from 56.8 to 58.1. Five months ago, the output index stood at 51.2, illustrating the improvements seen since then. Moreover, February’s output figure is the highest that it has been since March 2011.

The pace of growth for new orders, employment, and input prices eased a bit. These numbers – particularly sales – helped bring the composite index down for the month, even with higher output. The index for new orders dropped from 57.4 to 56.4. While U.S. sales continued to rise, new export orders contracted once more, reversing two months of modest gains and reflecting continuing weaknesses abroad, especially in Europe (see below). Meanwhile, hiring and raw material prices expanded in February, with each at their slowest pace of the last few months.

Markit Chief Economist Chris Williamson said, “Employment rose in February, but the rate of job creation slowed and remained weaker than policymakers would like to see.” He went on to say: “While the survey … paints an encouraging picture of the manufacturing sector, helping to drive a return to growth for the economy as a whole in the first quarter of this year, firms still need to see greater confidence in the longer-term economic outlook for employment numbers to pick up again.”

This improving – but still cautious – economic outlook in the U.S. stands in contrast to what we continue to see in Europe. The Markit Flash Eurozone Manufacturing PMI was essentially unchanged, down from 47.9 in January to 47.8 in February. While this index has improved from the 44.1 figure observed in August, it continues to reflect a challenging environment for businesses on the continent. The PMI has shown contracting levels since August 2011, or for 19 straight months.

Despite the persistent bad news, the rate of decline for new orders slowed in February in the manufacturing sector. One positive to report was an expansion in new export orders, up from 48.8 to 51.7, the first increase in export sales since June 2011. The Markit report attributed this to increased exports to Asia and the U.S., with strength particularly seen in Germany.

Along those lines, the Flash German Manufacturing PMI shifted from a slight contraction (49.8) to a slight expansion (50.1) for the month. As noted in the Eurozone release, the main driver of the higher index reading was stronger growth in sales, both domestic and foreign. The new orders index rose from 48.5 to 52.7; while the new export orders index increased from 48.2 to 54.6. The jump in sales slowed the decline in employment, at least for February, which was a good sign.

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

Manufacturing continued its strong performance in boosting productivity and competitiveness during the fourth quarter of 2010 according to revised Bureau of Labor Statistics data released today.

Manufacturing led the economy in both the fourth quarter of 2010 and the full year.  For the fourth quarter, productivity (output per hour) in the manufacturing sector increased a very strong 5.9 percent, compared to the 2.3 percent increase in productivity for the economy as a whole. And for the full year of 2010, manufacturing productivity rose a phenomenal 6.7 percent, much faster than the 3.8 percent rate for the whole economy.

The manufacturing productivity increase for 2010 was nearly double the long-term average of 3.7 percent.  The productivity of American manufacturing is so strong that the average U.S. factory worker produced 43 percent more in the fourth quarter of 2010 than ten years ago. 

The rapid growth in productivity has helped U.S. competitiveness, in that while manufacturing labor compensation per hour rose 2.0 percent in 2010, unit labor costs in manufacturing fell 4.4 percent.  

 If manufacturing jobs are to increase in the future, output has to grow faster than productivity.  As the domestic demand for manufactured goods is not expected to grow as rapidly as productivity, faster output is going to depend on greater emphasis on exports.  The rest of the world economy – especially in Asia – is expected to outpace the U.S. economy, and that is where U.S. manufacturing can see the fastest gains.

The importance of exports to manufacturing is already evident in that the Census Bureau’s factory shipments data show that while manufacturing sales grew 9 percent overall in 2010, that was the result of 20 percent growth in exports and only 6 percent growth in domestic shipments.

Frank Vargo is the NAM vice president of international economic affairs.

The Federal Reserve’s report on August industrial production released earlier today shows that the economic recovery is slowing. Overall industrial production rose just 0.2 percent last month, the second instance of sub-par growth in the past three months. While it is somewhat encouraging that only six of the 19 major manufacturing industries posted declines in production last month, the fact remains that during the three months ending in August, manufacturing output increased at an annual rate of just 2 percent, the slowest rise in 14 months. So after falling 17.5 percent during the 18 months ending in June 2009, manufacturing production still remains 9 percent below the peak attained in December 2007. 

While some of the deceleration in growth that has taken place in recent months is due to the fact that temporary supports for growth, such as fiscal stimulus and inventory restocking, are now largely in the past, increased uncertainty with respect to federal tax and regulatory issues, documented in this year’s NAM Labor Day Report,  is acting as a burden to the recovery.

The Federal Reserve reported today that manufacturing production increased by a strong 0.8 percent in May, driven by a 1.7 percent rise in durable goods production.  The good news is that the gains in durable goods production were widespread, with 9 of the eleven industries increasing last month.  Two of the fastest-growing industries, wood products and furniture, are likely benefiting from the recent end of the homebuyer tax credit in April, which is expected to have positive impacts on housing-related manufacturing sectors for several more months.

The two industries that declined were aerospace and electrical equipment and appliances.  Because of the large nature of single-ticket orders and shipments in aerospace, this sector tends to jump around from month-to –month more than other sectors.  And production has been very strong in recent months for electrical equipment and appliances,  as consumers took advantage of state-administered federal government programs to purchase energy efficient appliances.  Given that 17 of these state programs have ended as funds have been exhausted, the downturn in electrical equipment and appliance production last month was no surprise. 

Separately, after four consecutive increases, nondurable manufacturing production remained unchanged in May, largely due to declines in chemicals and petroleum products that offset gains in other areas.  While the drop in petroleum production was likely a breather from extremely strong growth during the prior three months, the decline in chemicals could be the first sign of spillover effects from slowing growth in Europe.  One of the  chemical sectors that posted a significant fall in output last month was pharmaceuticals , where exports, two-thirds of which go to Europe,  account for about a quarter of domestic production.  Given the fact that pharmaceutical exports also declined in April, today’s report is another signal that weaker demand in Europe may be starting to have an effect on U.S. manufacturers.