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Manufacturing remains in the doldrums

Several reports on manufacturing show that while business isn’t dropping, it’s not growing like expected either. The Manufacturing ISM Report on Business® from the Institute for Supply Management (ISM) for the month of May showed the Purchasing Managers Index (PMI) registered 52.8%, an increase of 1.3 percentage points over the April reading of 51.5%.

Several reports on manufacturing show that while business isn’t dropping, it’s not growing like expected either. The Manufacturing ISM Report on Business® from the Institute for Supply Management (ISM) for the month of May showed the Purchasing Managers Index (PMI) registered 52.8%, an increase of 1.3 percentage points over the April reading of 51.5%.

According to Bradley J. Holcomb, CPSM, CPSD, Chair of the ISM Manufacturing Business Survey Committee, the Production Index registered 54.5%, 1.5 percentage below the April reading of 56%. The Employment Index registered 51.7%, 3.4 percentage points above the April reading of 48.3%, reflecting growing employment levels from April. Inventories of raw materials registered 51.5%, an increase of 2 percentage points from April’s 49.5%. The prices Index registered 49.5%, 9 percentage points above the April reading of 40.5%, indicating lower raw materials prices for the seventh consecutive month.

Image courtesy khunaspix/freedigitalphotos.net.
 “Comments from the panel carry a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports,” said Holcomb. “The panel also noted continuing concerns over the price of the U.S. dollar and challenges affecting markets related to oil and gas industries.”

There was this comment from one respondent on the subject from the computer and electronics industry: “The exchange rate on the dollar is hurting our sales in Asia. The conversion rate is lowering our profit in Europe where we sell in Euros.”

The New Orders Index rose nicely from 53.5% in April to 55.8% in May, and the Backlog of Orders also took a good jump from April’s 49.5% (the contracting side of the benchmark) to 53.5% -- the expanding side of the benchmark.

Other concerns are over energy. Another respondent (from Miscellaneous Manufacturing) to the ISM survey noted, “Continued challenges in markets related to oil and gas industries.”

The Manufacturers Alliance for Productivity and Innovation (MAPI) released its quarterly Economic Forecast on May 29, with chief economist Daniel J. Meckstroth, Ph.D. addressing that issue as well as a few others.  “A confluence of factors, including falling oil and natural gas prices, dollar appreciation, and consumers pulling back spending has tempered the U.S. economic outlook for 2015, according to the new forecast.”

In addition to the lack of consumer spending, Meckstroth said, “[T]he dollar appreciated by 20% in a short period of time, making imports cheaper and exports more expensive. Businesses have been cutting prices to keep market share up for foreign customers, hurting profits and investments. And with oil prices dropping by 50% in the fourth quarter (2014), drilling activity has plummeted, affecting jobs and the energy supply chain.”

According to the Bureau of Labor Statistics, non-farm payroll increased by 280,000 in May, however, manufacturing added just 2.5% of all those private sector jobs. Additionally, involuntary part time workers (those who would rather have full-time jobs) stood at 6.7 million, with an average work-week of non-farm private sector jobs at 34.5 hours. The manufacturing work-week was 40.7 hours with an average of 3.3 hours of overtime.

Scott Paul, President of the Alliance for American Manufacturing (AAM), commented on these recent figures, saying in a prepared release, “While most of the private sector soared in May, manufacturing posted a weak gain of 7,000 new jobs. I’m glad the number is positive, but it’s clean the strong dollar and a surge in imports over the past few months are dampening manufacturing job growth. That makes combating unfair trade practices and currency manipulation even more important. Without robust manufacturing job growth, it will be extremely difficult to rebuild the middle class.” 

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