State of manufacturing 3 – current national trends

Industry Market Trends (ThomasNet news)

Great source for up to the week assessment of manufacturing

This series of posts coincides with a session I’m going to be involved with at Leadership Clark County.  The entire day is going to be devoted to economic development, but here is my charge, as spelled out by Dr. Ed Hasecke, Associate Professor of Political Science at Wittenberg and co-chair for Leadership’s curriculum committee:

My task for today (11/19/2009)

The class is starting off with an introduction to Clark County.  Afterwards, they divide into groups to learn more about specific industries.  This is where you come in.  We would like you to provide insight into the nature of manufacturing in Clark county.  We also plan to have experts that represent agriculture, health care, and higher education.  There will be four 20-30 minute sessions where you will talk with the group about your industry.  This means that you will have 4 separate conversations about your industry with four different groups.  We have found these small group discussions to be much better at helping the class engage the topic and feel like they have met key leaders in the community.  

For your discussion, each group is interested in general trends that your industry faces both nationally and in Clark County.  What challenges face the industry?  If you could provide a brief introduction that describes these trends, that would be a great way to start the conversation.  The class will probably ask you questions like: How does Clark County help your industry?  How does your industry help Clark County?  Are there unique advantages or challenges that you face in this community?  Hopefully, these questions will spark an interesting discussion with the participants in the class.

National trends – recovery, productivity, but no job gains

Let’s look nationally first.  When you look at the economy as it stands now, there are a lot of interesting trends.  A fabulous source I go to is the Weekly Industry Crib Sheet from Industry Market Trends (ThomasNet news).  The following information was gleaned from articles at IMT over the past two weeks:

  • The US unemployment rate rose to 10.2% in October, the first time it has been over 10% in 26 years.  Ilya Leybovich writes that this fact is “reaffirming concerns over a jobless recovery and highlighting a growing disconnect between a recovery in economic output and continued job losses.”
  • The overall rate of job loss is going down. From IMT (ThomasNet): “The New York Times notes that the economy lost an average of 645,000 jobs per month between November 2008 and April 2009, while the average for the last three months has fallen to 188,000.  ‘People are hurting, but if you can get past the sticker shock of the unemployment rate and look at the guts of the report, they are still very consistent with a recovery. We’re getting very close to the peak unemployment rate,’ Michael T. Darda, chief economist at financial research firm MKM Partners, told the Times.
  • US labor productivity is skyrocketing.  “U.S. labor productivity in the non-farm business sector grew at a 9.5 percent annual rate through the third quarter of 2009, the largest gain in productivity since it rose 9.7 percent in Q3 2003, the Bureau of Labor Statistics reported last week. Output increased by 4 percent and hours worked decreased by 5 percent at a seasonally adjusted rate.” 
  • Record-setting productivity gains: “When combined with the second-quarter non-farm business productivity increase of 6.9 percent, the U.S. had its strongest productivity growth rate over a six-month period since 1961, the Wall Street Journal reports. As companies continue to cut costs while revenue recovers, employers are able to generate more output from the existing workforce.”
  • Manufacturing is leading the productivity gains.  “The largest gains were in the manufacturing sector, in which third-quarter productivity rose by 13.6 percent, with output increasing by 7.7 percent and hours worked falling by 5.2 percent. This was the largest quarterly gain in manufacturing productivity since 1987. Unit labor costs, which measure the cost of the labor needed to produce one unit of output, fell at a 7.1 percent annual rate.”
  • It looks like a recovery. “Big productivity gains are common at the end of recessions and the beginning of recoveries. The usual pattern is productivity grows first, then employment rises, and finally wages increase,” the Wall Street Journal notes.
  • For first time in over a year, credit is more available for manufacturers.  This is according to the latest monthly survey of credit professionals from the National Association of Credit Management (NACM).  “The data showed that in October: 1) debt payments improved, 2) the amount of credit being extended rose to its highest level in more than 12 months, 3) fewer applications for credit were being rejected and 4) fewer firms were falling into collection or bankruptcy.”
  • Ford and GM posting good results.  Ford’s sales in October are 3.3% over last year; October sales are up 21% over September.  Ford’s share of the US market rose to 14%, highest in 3 years.  GM’s total sales up 4.7%, according to WSJ, and its auto sales in China doubled from last month.  Chrysler’s sales in October were 6% over September but still represents a decline every year for the last 30 years.
  • Manufacturing unionization continues decline.  “In 2008, only one in 10 union members worked in manufacturing, down from nearly three in 10 in 1983. Five in 10 union workers were in the public sector last year, and the remaining four out of 10 were in the private sector outside manufacturing, according to the CEPR” (Center for Economic Policy and Research. 
  • Unionization in general continues decline.  “The union membership rate in the U.S. has fallen from 20.1 percent of employed wage and salary workers in 1983 to 12.4 percent in 2008, according to the U.S. Bureau of Labor Statistics’ (BLS) latest union members summary, which reports that there are 16.1 million workers belonging to a union in the U.S., down from 17.7 million in 1983.”
  • Real GDP rose in Q3 2009 for first time in over a year. “Real gross domestic product (GDP) in the U.S. rose an estimated 3.5 percent (at an annual rate) in the third quarter, following four consecutive quarters of decline. “Most forecasters anticipate another moderate gain in the fourth quarter,” Federal Reserve Chairman Ben Bernanke said in remarks to the Economic Club of New York today.”  Note: “The Commerce Department attributed much of the gain to an increase in consumer spending, which added 2.36 percentage points to the increase, while exports accounted for 1.5 percent and sales of motor vehicles and parts constituted 1 percent.”
  • Manufacturing equipment orders up in September.  “Consumption of U.S. machine tools and related technologies totaled $153.55 million in September, up 17.8 percent from August, according to the latest monthly U.S. Manufacturing Technology Consumption (USMTC) report from the American Machine Tool Distributors’ Association and the Association for Manufacturing Technology.”
  • Midwest purchasing 34% more equipment; South’s purchases declining.  “On a regional basis: Northeast region manufacturing technology consumption in September rose 50.8 percent from August; consumption in the Southern region dropped 42.8 percent; Midwest region consumption rose 33.8 percent; consumption in the Central region increased 8.5 percent; and Western region manufacturing technology consumption in September was up 39.7 percent.”
  • Majority of manufacturers predicting positive growth.  “In the latest edition of the PricewaterhouseCoopers LLP Manufacturing Barometer, released last week (this quote from Nov. 2 article), 57 percent of U.S.-based industrial manufacturers said they expect positive growth over the next 12 months, with 12 percent predicting double-digit growth and “45 percent expecting single-digit growth.”

IMS’s October Report on Business

Another great source is the monthly Report on Business by the Institute for Supply Management.  Here is the summary table of activity in manufacturing: 

MANUFACTURING AT A GLANCE
Oct-09
Index Series Series % Direction Rate  
Index Index Point of Trend*
Oct. Sept. Change Change (Months)
PMI 55.7 52.6 3.1 Growing Faster 3
New Orders 58.5 60.8 -2.3 Growing Slower 4
Production 63.3 55.7 7.6 Growing Faster 5
Employment 53.1 46.2 6.9 Growing From Contracting 1
Supplier Deliveries 56.9 58 -1.1 Slowing Slower 5
Inventories 46.9 42.5 4.4 Contracting Slower 42
Customers’ Inventories 38.5 39 -0.5 Too Low Faster 7
Prices 65 63.5 1.5 Increasing Faster 4
Backlog of Orders 53.5 53.5 0 Growing Same 3
Exports 55.5 55 0.5 Growing Faster 4
Imports 51 52 -1 Growing Slower 2
             
OVERALL ECONOMY Growing Faster 6
Manufacturing Sector Growing Faster 3

I find most interesting the fact that (1) the manufacturing sector is trailing a bit in the recovery (3 month lag); (2) exports are growing faster while imports are declining; (3) employment has shifted from contracting to growing; and (4) the PMI increased to above 55.  If you’re not familiar with PMI, here is a quick synopsis from Investopedia:

  • What Does Purchasing Managers’ Index – PMI Mean?
    An indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment
  • Investopedia explains Purchasing Managers’ Index – PMI
    A PMI of more than 50 represents expansion of the manufacturing sector, compared to the previous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change. Prior to September 1, 2001, the acronym (PMI) stood for Purchasing Managers’ Index. The Institute of Supply Management (ISM) now uses only the acronym, PMI.
  • Although the ISM publishes several indexes, the PMI is the most widely followed and is sometimes referred to as the ISM index.

Most industries are expanding

From ISM’s report: “In October, 13 of the 18 manufacturing industries reported growth. The industries — listed in order — are:

  1. Petroleum & Coal Products;
  2. Apparel, Leather & Allied Products;
  3. Furniture & Related Products;
  4. Chemical Products;
  5. Computer & Electronic Products;
  6. Transportation Equipment;
  7. Plastics & Rubber Products;
  8. Machinery;
  9. Food, Beverage & Tobacco Products;
  10. Printing & Related Support Activities;
  11. Fabricated Metal Products;
  12. Electrical Equipment, Appliances & Components; and
  13. Paper Products.

The three industries reporting contraction in October are:

  1. Nonmetallic Mineral Products;
  2. Primary Metals; and
  3. Wood Products.

Comments from around industry

These comments, also in the report, are interesting:

  • “We are beginning to be affected greatly by lead-time increases on semiconductor components.” (Computer & Electronic Products)
  • “Still a very difficult environment — commodity increases threaten recovery and don’t seem to correlate with any supply/demand fundamentals.” (Food, Beverage & Tobacco Products)
  • “Automotive demand still remains strong even after ‘cash for clunkers.'” (Fabricated Metal Products) [indicated for the second month]
  • “After several rather busy months, we are seeing the order intake for early next year soften.” (Transportation Equipment)
  • “The improvement seen earlier is not holding.” (Primary Metals)
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One Response

  1. Great post, Very informative…

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