Expansion in manufacturing activity in California is expected to decelerate in the fourth quarter, according to the A. Gary Anderson Center for Economic Research at Chapman University. The composite purchasing managers’ index declined from 64.4 in the third quarter to 57.8 in the fourth quarter, suggesting that respondents anticipate slower growth. While the declines were broad-based, it is notable that the index remained above 50 – its threshold for growth. This indicates a moderating in the expansion of the key measures, even as new orders, production, and hiring remain positive overall.
Indeed, the index for new orders fell from relatively strong increases in the third quarter (69.8) to a more modest figure in the fourth quarter (59.4). The data were more mixed, though, that this index might suggest. Just shy of one-third of respondents said that their sales were not expected to change, with 39.1 percent forecasting increases and 28.7 percent forecasting declines. Production was somewhat similar, but manufacturers continued to be more hesitant on the hiring front. The employment index declined from 58.6 to 54.5, with almost 60 percent of those taking the survey planning no changes in hiring.
The sample comments tend to echo the underlying data. A machinery manufacturer sounded a more-upbeat tone by saying, “Current production plans have been increased over the past few months. We’ve started to increase our purchased quantities to meet the increases in production.” Yet, these were contrasted by feedback stating “no sign of significant turnaround” from a chemical manufacturer and the plastics and rubber products maker who said that new orders were “the missing ingredient.” Regarding the sluggish hiring picture, a fabricated metal products firm added, “Even though business level [is] going upward, we likely will add technology and automation rather than employees.”
The reduced levels of activity for the fourth quarter were seen in all manufacturing sectors, but the largest declines were in the high-tech (down from 65.2 to 54.5) and other durable goods (down from 62.6 to 54.5) industries. The falloff in nondurable goods activity was less pronounced, down from 65.9 to 63.3, and indicates a still-decent pace.
Chad Moutray is the chief economist, National Association of Manufacturers.