PMI Archives - Shopfloor

ISM: Manufacturing Activity Expanded in February at Its Fastest Rate Since August 2014

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The Institute for Supply Management’s (ISM) Manufacturing PMI expanded at its fastest rate since August 2014. The composite index rose from 56.0 in January to 57.7 in February, and it marked the sixth straight monthly expansion in the headline number. Indeed, manufacturing sentiment has soared in recent months, buoyed by expectations that demand and output will benefit from possible pro-growth policies emanating from Washington. Indeed, all of the sample comments echoed this optimism, citing a “very positive outlook,” “solid” demand and “strong” growth. Along those lines, new orders (up from 60.4 to 65.1) and production (up from 61.4 to 62.9) both indicated healthy gains for the month, with sales growth at levels not seen since December 2013. In addition, exports (up from 54.5 to 55.0) also picked up a little, which was refreshing given the struggles with increasing international sales over the past couple years. Read More

ISM: Manufacturing Activity Continued to Grow Rather Strongly in January

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The Institute for Supply Management’s (ISM) Manufacturing PMI continued to grow rather strongly, accelerating to its fastest pace since November 2014. The composite index rose from 54.5 in December to 56.0 in January, and it marked the fifth straight monthly expansion in the headline number. New orders (up from 60.3 to 60.4) and production (up from 59.4 to 61.4) expanded strongly in January. Along those lines, the sample comments all point to healthier conditions and stronger demand in the manufacturing sector, which is very encouraging. In addition, employment also picked up the pace (up from 52.8 to 56.1), suggesting that manufacturers have begun to move past the more cautious approach to hiring seen just a few months ago. Read More

Monday Economic Report – April 7, 2014

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

Manufacturers appear to be recovering from softness in the first two months of the year, mainly due to the number of severe winter storms. The Institute for Supply Management (ISM) reported that its Purchasing Managers’ Index (PMI) edged higher, up from 53.2 in February to 53.7 in March. Production began expanding again, with the pace of new orders and exports picking up slightly. Despite some degree of progress in March, sentiment remains lower than just a few months ago. PMI values averaged 56.3 in the second half of last year, with sales and output measures exceeding 60—indicating strong growth—each month from August to December.

Likewise, new factory orders increased 1.6 percent in February, partially offsetting the sharp declines in December and January. Beyond autos and aircraft, however, durable goods sales were just barely higher, suggesting more needs to be done for broader growth in the sector. Meanwhile, the Dallas Federal Reserve Bank’s manufacturing survey reflected a rebound in activity consistent with other Federal Reserve districts. Texas manufacturers remain positive about sales, output, hiring and capital spending moving forward. For example, more than half of respondents anticipate increased demand over the next six months. Still, some cited regulatory, pricing pressure, workforce and foreign competition concerns.

On the hiring front, Friday’s jobs numbers provided mixed news for manufacturers. The sector lost 1,000 workers in March, mainly due to declines in nondurable goods industries. This was particularly disappointing given consensus expectations that were closer to the ADP’s estimates, which had a gain of 5,000 workers for the month. Yet, revisions to January and February data provided some comfort, adding 15,000 more employees than original estimates. As a result, the longer-term trend for manufacturing did not change much despite March’s lower figure. Manufacturers have added more than 600,000 workers since the end of the recession, and since August, the sector has generated an average of 12,125 net new jobs per month. Another positive in this report was that the average number of hours worked and average compensation both rose, findings that mirror the rebound in overall activity.

Meanwhile, the latest international trade figures were also disappointing. The U.S. trade deficit widened from $39.28 billion in January to $42.30 billion in February. This was the highest deficit since September and the result of a decrease in goods exports and an increase in service-sector imports. Petroleum exports were also marginally lower. The numbers were particularly discouraging given that manufactured goods exports in January and February of this year were 0.6 percent lower than the first two months of last year. Still, outside of softness in our goods exports to Canada, the other top-five export markets for U.S.-manufactured goods registered increases year-to-date in 2014 relative to 2013. In addition, there remains cautious optimism that export sales will improve in the coming months.

This week, the focus will be on the release of the minutes from the March Federal Open Market Committee (FOMC) meeting. The minutes will provide additional insights on the internal debates that led the Federal Reserve Board to continue tapering but to also change its forward guidance for short-term interest rates. On Friday, the release of producer price data should continue to show that overall inflation remains minimal. Other highlights include the latest data on consumer confidence, job openings, small business optimism and wholesale trade.

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

ism pmi - apr2014

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

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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.

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

Monday Economic Report – January 6, 2014

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

The incoming data show that manufacturers ended 2013 on a high note. Despite a slight decline in December, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) has reflected expanding manufacturing activity for seven consecutive months. Moreover, the manufacturing PMI data averaged 56.3 in the second half of 2013, a nice improvement from the 51.5 average during the first half of the year. As such, it appears that manufacturing activity has rebounded in the past few months from notable weaknesses in the spring, helping to buoy the prospects for continued growth in 2014. For instance, the real strength in the ISM report has been the new orders and production indices, both of which have exceeded 60.0—signifying healthy gains—for at least five straight months.

In a report released after Christmas, the Census Bureau reported that new durable goods orders increased 3.5 percent in November (or 1.2 percent, if you exclude the highly volatile transportation sector). From November 2012 to November 2013, sales of durable goods products rose at a strong 10.9 percent pace, and they are at their second-highest level since the end of 2007. Such findings are encouraging. At the same time, manufacturers in the Dallas and Richmond Federal Reserve Bank districts remain mostly upbeat about future activity for the sector. This was true even with some easing in new orders in both regions. More than half of the respondents to the Texas Manufacturing Outlook Survey expect increased new orders in the next six months.

Manufacturing construction spending rose 1.2 percent from $53.93 billion in October at the annual rate to $54.58 billion in November. This was the fifth straight month that construction spending has risen for the sector, increasing from $43.34 billion in June, the lowest point of the year. Over a longer time horizon, manufacturers have steadily upped their construction investment dollars after bottoming out in January 2011 at an annualized $28.84 billion pace. Overall construction activity increased 5.9 percent on a year-over-year basis, boosted significantly by the rebounding housing market. Private, residential construction activity has grown 16.6 percent since November 2012. Private, nonresidential construction spending has been stable, rising a more modest 1.0 percent year-over-year. However, nonresidential construction in the private sector has risen five months in a row, up 8.5 percent in that time frame.

Similarly, we have seen consumer confidence rebound in the latest data after falling during the federal government shutdown. Reports from both the Conference Board and the University of Michigan observed rising sentiment in December. The Conference Board’s Consumer Confidence Index increased from 72.0 in November to 78.1 in December. While this remains below the recent peak of 82.1 in June (its highest point since January 2008), it is clear that Americans have become more optimistic over the course of 2013, with the index measuring 58.4 in January. Even with these gains, consumers remain somewhat anxious about the economy, particularly with their income and job potential. The Conference Board’s key measure has not exceeded 100 since August 2007.

The Conference Board report does suggest an increased willingness to purchase homes and appliances, with automobile buying intentions improved from the summer. Similarly, personal spending growth has also made gains in the past few months, up 0.4 percent in October and 0.5 percent in November. Much of that growth stemmed from an increase in durable goods expenditures. Consumer spending has increased 3.5 percent over the past 12 months, its fastest pace of 2013 and an improvement from the 2.9 percent year-over-year rate in September.

This week, the primary focus will be the employment report due out on Friday. The consensus estimate is for roughly 200,000 nonfarm payroll jobs added in December, which would be in line with the 204,000 average per month from August to November. Likewise, manufacturers added an average of 16,500 net new workers each month over the same time frame, and they are expected to have continued to make modest hiring gains in December. The other key highlight this week will be new international trade data, which will be released tomorrow. Recent data have suggested a narrowing of the overall trade deficit, and yet, growth in manufactured goods exports has been quite slow. We hope improvements in the global economy will help to increase manufacturers’ overseas sales moving forward.

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

ism pmi - jan2014

California’s Manufacturing Sector Anticipates Slower Growth in the Fourth Quarter

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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.

ISM: Manufacturing Activity Continued to Accelerate in September

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The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) edged slightly higher, up from 55.7 in August to 56.2 in September. This was the fourth consecutive increase, illustrating improvements in the sector since the contraction observed in May. Moreover, September’s PMI was the fastest pace since April 2011.

The larger story is the progress acceleration in activity over the course of the past few months, with relatively strong growth in production and new orders. For instance, the index from production has bounced back from contracting in May (with a sub-50 reading of 48.6) to recording three months in a row of 60-plus readings. The production index increased from 62.4 in August to 62.6 in September. The sample comments tended to echo these sentiments, with many citing increasing demand for their goods.

Along those lines, the pace of new orders remained healthy despite a slight pullback from 63.2 to 60.5. Stronger sales activity should bode well for future output growth. One area of caution was in foreign markets. The exports index eased from 55.5 to 52.0, suggesting a moderation in the growth of sales overseas.

One of the weaker components of the PMI data has been hiring growth, with manufacturers continuing to be hesitant to add new workers. The employment index rose from 53.3 to 55.4, suggesting a pickup in hiring for the sector. This would be good news if true, particularly with manufacturers adding just 20,000 additional workers over the past year and several other reports, including the NAM/IndustryWeek Survey of Manufacturers, indicating only modest growth at best in terms of hiring.

Two other data points of note included inventories and prices. Stockpiles in general have been depleted over much of the past year or so, with negative inventories in five of the nine months so far in 2013. In September, inventory levels were unchanged, up from contractions in July and August. Meanwhile, pricing pressures have picked up a bit (up from 54.0 to 56.5), and yet, inflation remains mostly modest.

Overall, manufacturers wrapped up a pretty decent third quarter in terms of output and sales. That is definitely the case when compared to the softness experienced in the second quarter, when activity was essentially stalled. The average PMI reading for the last three months was 55.8, and more importantly, the average new orders reading was 60.7, indicating relatively strong growth in sales. As such, this data tends to mirror other reports that show an acceleration of activity of late for the sector.

Such data tend to support the notion of cautious optimism ahead, and yet, uncertainties in the marketplace could put a monkey wrench in such positivity. Fiscal uncertainty is likely to limit economic growth – at least in the short-term – and we continue to see growth rates for manufacturing that, while better than in the spring, are still not as robust as we might like. With that in mind, this manufacturing report suggests movement in the right direction, but policymakers would be wise to move beyond the short-term budget battles and begin debating ways to grow our economy for the long-term.

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


Monday Economic Report – August 5, 2013

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Here are the files for this week’s Monday Economic Report:

Data reports on the manufacturing economy were mixed last week, with some releases providing hints of optimism, while others continued to note challenges. Output soared in the latest Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) report. The PMI rose from 50.9 in June to 55.4 in July, far exceeding expectations and lifted by jumps in production (up from 53.4 to 65.0) and new orders (up from 51.9 to 58.3). Hiring also shifted from contraction to modest growth (up from 48.7 to 54.4). The ISM report was overwhelmingly positive and more evidence that the sector has improved this summer after weaknesses in the spring, with cautious optimism for the second half of the year. Sentiment surveys from the Chicago and Dallas Federal Reserve Banks noted similar progress, mirroring findings from most other regions.

Despite encouraging recent developments regarding output and sales, overall hiring has yet to pick up beyond small gains. The Bureau of Labor Statistics reported that manufacturers added 6,000 net new workers in July, ending four straight months of declines. Yet, the auto sector alone contributed 9,100 to this figure, suggesting that without gains in motor vehicle employment, the broader sector would have had losses again. Moreover, in the past 12 months, manufacturers added just 40,000 additional workers, or 1.8 percent of all net new nonfarm payroll jobs. This is a far cry from the outsized role that the sector played during the two months following the recession. Manufacturers continue to be hesitant to add new workers, a trend that will probably continue until they perceive the economic marketplace to be on a firmer footing.

The Federal Reserve Board’s policy statement—which kept “highly accommodative” monetary policies in place without any changes (perhaps until this fall)—said that economic activity expanded modestly during the first half of the year. Yet, while there was progress by midyear, growth has not been fast enough. The Bureau of Economic Analysis did a major revision on its GDP and income data going back to 1929, adding in new measures of intellectual property and research and development. Using the new data, we now know that real GDP increased by 1.1 percent and 1.7 percent in the first and second quarters of 2013, respectively. While the second-quarter figure exceeded expectations, the U.S. economy has been operating below its potential, with manufacturers keenly aware of and challenged by this softness. Still, real GDP should increase by roughly 2 percent for 2013 as a whole.

This forecast, however, relies on a better second half of the year. For that to happen, we will need to see continued strength in consumer and business spending, which alone added 2.56 percentage points to real GDP in the second quarter. Consumer confidence remains strong overall, with measures from the Conference Board and the University of Michigan at or near pre-recessionary highs. Personal spending data have also been mostly positive, with increases in durable and nondurable goods spending in June. This is true despite the fact that personal income grew less strongly, lowering the savings rate from 4.6 percent in May to 4.4 percent in June. Meanwhile, construction activity has been less robust of late, with reduced housing starts and declines in nonresidential spending. Manufacturing construction was off 1.9 percent year-over-year in June, highlighting its weaknesses; however, a pickup in production or sentiment could rejuvenate construction investments for the sector.

One of the larger drags to real GDP in the second quarter was net exports, with growth in imports outstripping exports. Tomorrow, we will get new international trade data, which will hopefully show some improvements. Through the first five months of 2013, manufactured goods exports grew a paltry 1 percent. Recent reports show that Europe’s problems might be stabilizing, even as China’s seems to be slowing. The trade figures will be watched closely for signs of progress regarding international demand for our goods. Other economic highlights for the week include the latest credit availability and demand, job openings and wholesale trade reports. In addition, the new Global Manufacturing Economic Update will be released on Friday.

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

Monday Economic Report – February 4, 2013

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

Manufacturing activity picked up somewhat in January, according to several reports that came out last week. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) rose from 50.2 in December to 53.1 in January. Stronger sales and production data helped to lift this index higher, with export growth still lagging (but no longer declining). The data was mirrored in the latest surveys from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks. New durable goods orders were also higher in December, mainly due to increased aircraft sales.

The sentiment surveys tended to show an uptick in hiring in January, which might be a gauge of future activity. However, for now at least, the data show that employment growth in the sector has been slow at best. The ADP payroll data suggest that manufacturing employment contracted in January, while the government report showed that manufacturers added just 4,000 workers during the month. It is hard to ignore the significant slowdown in hiring that took place among manufacturers during the second half of 2012, with worries about sales and the economic outlook taking a toll on hiring and investing. While the larger economy added roughly 180,000 workers on average each month last year—a figure which is decent, but still not strong enough to bring the unemployment rate down—manufacturers only gained 11,000 additional workers in the last six months of the year.

Much of the economic uncertainty was tied to the fiscal cliff negotiations, with upcoming debates on the budget and deficit still causing uncertainty for many manufacturers. With the debt ceiling conversation postponed until mid-May, all eyes will now focus on the across-the-board federal budget cuts scheduled for March 1 and the possibility of a government shutdown on March 27. The fiscal cliff’s impact can be seen in the economic data as well, with manufacturing activity falling and consumer and business confidence indicators plunging. Dividends rose sharply at the end of the year (up 34.3 percent in December), as companies tried to accelerate these payments in anticipation of higher dividend taxes. The result was a 2.6 percent rise in personal income, pushing the savings rate up to 6.5 percent, its highest level (albeit a temporary one) in nearly four years.

The Federal Reserve Board reported that the economy “paused” at the end of 2012, referencing both Hurricane Sandy and the political wrangling over the fiscal cliff. Beyond that, however, the Federal Open Market Committee (FOMC) made little news. It continued the stimulative policies put in place in December, with new rotating members of the FOMC voting much like the old ones did. Kansas City Federal Reserve Bank President Esther L. George picked up the mantle of her fellow inflation hawks by being the lone dissenter.

This week is a much slower one on the data front. The key data to watch for will come on Thursday with new labor productivity numbers and on Friday with the latest international trade figures. The export data will be closely followed as it will be the first to show activity for all four quarters of 2012.

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