Advertisement

Blog

Positive Signs From the US Manufacturing Industry

US manufacturing activity in November increased for the 16th consecutive month, according to the latest business report released by the Institute of Supply Management, led by the computer and electronics manufacturing sector.

Of the 18 manufacturing industries covered by the ISM report, 10 are reporting growth in November, in the following order:

  1. Computer & Electronic Products
  2. Petroleum & Coal Products
  3. Apparel, Leather & Allied Products
  4. Machinery
  5. Fabricated Metal Products
  6. Plastics & Rubber Products
  7. Transportation Equipment
  8. Electrical Equipment, Appliances & Components
  9. Chemical Products
  10. Primary Metals

The US data comes on the heels of positive manufacturing growth activity in both China and the UK. Analysts are reacting positively to the reports, although cautioning that China's data shows increasing inflationary pressures in the region. Pricing was cited as a concern in the US report; analysts also noted commodities were in increasingly short supply. The electronics manufacturing industry was one of the sectors that noted price increases during the November period.

“The manufacturing sector grew during November, with both new orders and production continuing to expand,” says Norbert J. Ore, chair of the Institute for the Supply Management Manufacturing Business Survey Committee. “With the PMI at 56.6 percent, November's rate of growth is the second fastest in the last six months.”

A PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 19th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 16th consecutive month.

“Exports and imports continue to support expansion in the sector,” Ore notes. “Prices moderated slightly during the month, but comments from the respondents express concerns with regard to pricing pressures. The list of commodities in short supply increased, though short supply items are not yet posing significant problems. Manufacturing continues to benefit from the recovery in autos, but those industries reliant upon housing continue to struggle.”

Some additional highlights from the report:

Employment
ISM's Employment Index registered 57.5 percent in November, which is 0.2 percentage point lower than the 57.7 percent reported in October. This is the 12th consecutive month of growth in manufacturing employment.

An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Eleven of the 18 manufacturing industries reported growth in employment in November in the following order:

  1. Apparel, Leather & Allied Products
  2. Petroleum & Coal Products
  3. Primary Metals
  4. Paper Products
  5. Fabricated Metal Products
  6. Computer & Electronic Products
  7. Machinery
  8. Transportation Equipment
  9. Chemical Products
  10. Electrical Equipment, Appliances & Components
  11. Miscellaneous Manufacturing

The four industries reporting a decrease in employment during November are: Furniture & Related Products; Plastics & Rubber Products; Printing & Related Support Activities; and Food, Beverage & Tobacco.

Inventories
Manufacturers' inventories grew in November as the Inventories Index registered 56.7 percent. The index is 2.8 percentage points higher than the 53.9 percent reported in October.

An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis's figures on overall manufacturing inventories (in chained 2000 dollars).

The nine industries reporting higher inventories in November, listed in order, are:

  1. Apparel, Leather & Allied Products
  2. Computer & Electronic Products
  3. Machinery
  4. Plastics & Rubber Products
  5. Chemical Products
  6. Paper Products
  7. Miscellaneous Manufacturing
  8. Fabricated Metal Products
  9. Food, Beverage & Tobacco Products.

The three industries reporting decreases in inventories in November are: Primary Metals; Transportation Equipment; and Electrical Equipment, Appliances & Components.

Prices
The ISM Prices Index registered 69.5 percent in November, 1.5 percentage points lower than the 71 percent reported in October. This is the 17th consecutive month the Prices Index has registered above 50 percent. While 48 percent of respondents reported paying higher prices and 9 percent reported paying lower prices, 43 percent of supply executives reported paying the same prices as in October.

A Prices Index above 49.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

The 14 industries reporting paying increased prices during the month of November, listed in order, are:

  1. Plastics & Rubber Products
  2. Electrical Equipment, Appliances & Components
  3. Chemical Products
  4. Apparel, Leather & Allied Products
  5. Food, Beverage & Tobacco Products
  6. Computer & Electronic Products
  7. Paper Products
  8. Fabricated Metal Products
  9. Nonmetallic Mineral Products
  10. Machinery
  11. Primary Metals
  12. Miscellaneous Manufacturing
  13. Printing & Related Support Activities
  14. Transportation Equipment.

None of the 18 manufacturing industries reported paying lower prices on average during November.

Anecdotal information from the electronics industry is tracking with the overall US manufacturing trend. While top-tier distributors {complink 577|Avnet Inc.} and {complink 453|Arrow Electronics Inc.} increased their inventories in anticipation of the current quarter, they are not out of line with the companies' projections for customer demand. Component suppliers report prices have stabilized, although spot prices — particularly in the memeory market — continue to be volatile. Bolstered by positive manufacturing data, the electronics industry should be cautiously optimistic for the fourth quarter.

9 comments on “Positive Signs From the US Manufacturing Industry

  1. eemom
    December 1, 2010

    That is all great news and consistent with what we hear that the recession is practically over.  However, if all the numbers have been on the incline for more than 12 months, why do we still see jobs lost?  Why do we not see an improvement in the unemployment rate?  There are a lot of corporations that are sitting on a fair amount of cash right now, why are they gun shy about spending?

  2. Barbara Jorgensen
    December 1, 2010

    Good questions. Part of the answer comes from the methodology the report uses. I'll admit I am not great at this but i'll give it a try:

    There are a bunch of subsegments within the report, including inventory, price and employment. Each of these has its own index. So while manufacturing was up overall, employment actually dipped a bit month over month.

    Let's say for the sake of argument the manufactruing index is 1. Anything above 1 is growth; anything below 1 is contraction. So let's say November's rate was 1.5; down from 2.0 in October. Manufacturing actually grew because it is above 1, but the rate of growth slowed down. The employment index, which is totally separate, also declined, but based on the index has grown because it is still over 1.

    The entire report is online at the link mentioned and includes charts that actually show these trends. Check out “Manufacturing at a Glance” and you'll see that most of indexes declined month to month.

    They do a good job of explaining the methodology. In general, indexes confuse me 🙂

  3. eemom
    December 1, 2010

    Thanks for the explanation.  In looking at employment numbers in the original report, it seems that November numbers were slightly lower than October, higher than September but much lower than August.  They state a consistent increase because like you mention, they compare it to an index of 49.8% and in all these months the employment numbers were indeed higher than the index. 

    While the report represents a positive outlook, I still feel that corporations in general are still tightening their belt, not hiring, not spending and in general keeping the economy flat.  One good piece of news is that at least the downsizing has slowed down.  Hopefully as we move into 2011 and a positive economy is sustained, companies will once again start spending – maybe more carefully and wisely and get our economy back on the right track.

  4. Ashu001
    December 2, 2010

    Only problem being that most of the numbers depend on a Weak Dollar,especially
    vs the Euro(which is now over,with Europe exploding under its Soveriegn Bond mess),there is no way the Euro will be able to maintain these elevated levels against the US Dollar.Once that registers manufacturing will contract again for sure in America.Another major issue is Chinese tightening(Higher Interest rates) to prevent Over-heating.Which puts another crimp in Demand for US products.

    Also here in America we now have State Govts(major employers) start cutting staff like theres no tommorow because of massive Budget Deficits.AS Austerity starts to grip both America and Europe at the same time,where is the Demand for Manufactured products going to come from???

    So we have to be cautious for a little while longer before celebrating these good numbers.

    regards

    Ashish.

  5. Barbara Jorgensen
    December 2, 2010

    Agreed. Proceed with caution

  6. Anna Young
    December 2, 2010

    Similar positive numbers about manufacturing have been published in the UK, welcome news to many people here. Will these figures stay up or will they slide down in the first quarter of next year? We don't know but what we need more than anything is to have those numbers translated into higher employment. When will this happen? That's the real issue at stake.

  7. Mydesign
    December 3, 2010

       Barbara, you are right. After the recession period almost all sector are picking up gradually, especially the technology based companies.  During the recession time the key technological (IT and Electronics) companies suffered a lot and some of them even lost their identity too. After all, from the midst of last year, market starts showing a positive sign of growth and companies are driving to capture the markets in their own traditional way. Now the recovery sign is more evident and by keeping the upcoming demand in the industry, everybody is running fast to grab their own positions. As a result of this fast trend, they are trying to promote more products with different variants. Hence the annual turnover also goes up in 2010. This helps the companies, to raise their capital from market and sharing a part of this revenue with employees as salary and other perks.

        This process is like a closed chain, if demand is their then production also increases, which help the company to earn revenue, so intern the employees also have a hike in their salary. Hope everything will be fine and we will not face a recession in near future

  8. Barbara Jorgensen
    December 3, 2010

    I think it's important to view this and any data with a critical eye. Of course we are starved for good news, and the fact that the UK and China reported high levels of manufacturing activity point to a global recovery. While stock markets surged with the news, financial markets are so short-sighted that it won't take much to de-rail the progress. If the manufacturing industry can advance without being beholden to the financial markets (and I'm not sure they can) then this is definitely reason for optimism.

  9. kumar1863
    December 3, 2010

    Thanks for the post Barbara. This is really a good news for people in all sectors. Students can expects a good employment opportunities in the future, investors will confidently invests their money, and industries will go for newer technologies and finally customers can expect finer products in the market.  This is really a global recovery there is an improvement in every sector. 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.