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The Manufacturing Report on Business for October 2014 from the Institute for Supply Management (ISM) shows some forward momentum, with the October PMI registering 59, an increase of 2.4% over September's reading of 56.6%, indicating continued expansion in manufacturing.

Clare Goldsberry

November 4, 2014

4 Min Read
October ISM report shows positive movement

In fact, all indicators, except for exports, moved up. The new orders index took a nice jump to 65.8 in October from 60.0 in September. The production index moved up slightly from 64.6% in September to 64.8% in October. Employment also ticked up by 0.9% to 55.5% in October from September's 54.6%.

With manufacturing seeming to ramp up, supplier deliveries are slowing, to 56.2 in October from 52.2 in September, and the inventories index is showing growth, up 1% from 51.5 in September to 52.5 in October. However, customer inventories are showing "too low" at 48% in October from 44.5% in September. While that is an increase of 3.5%, it is still on the "contracting" side of the equation.

Prices remain on the increase, however, falling 6% to 53.5% in October from 59.5% in September. Backlogs are growing to 53% in October from 47% in September, also a sign that companies are getting busier as new orders grow.

Exports, which are still on the "expansion" side of the equation, have slowed to 51.5% in October from 53.5% in September. Imports are growing, up 1.5% in October to 54.5% from September's 53%.

Of the 18 manufacturing industries ISM tracks each month, 16 reported growth in October, with Plastics & Rubber Products coming in first on that list, showing strong demand in that category. Fabricated metal products, which would include moldmaking, is third on that list, a trend that typically follows strong demand for plastic products.

That good report from the ISM is also reflected in Boston Consulting Group's (BCG) latest study, The U.S. Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback, which shows U.S. executives remaining "bullish on American manufacturing." The firm's third annual survey of senior manufacturing executives at companies with sales of $1 billion or more found that the number of respondents who said that their companies are already bringing back production from China to the United States had risen 20%—from roughly 13% to 16%—in the past year. The number who said they would consider returning production in the near future climbed 24%, from about 17% to 20%. And a majority (54%) expressed interest in reshoring, validating last year's result (also 54%).

Decision makers at large manufacturers expect the U.S. share of their production to rise an average of 7% in five years; half expect to boost U.S. factory jobs by 5% or more, according to the latest BCG survey. "These findings show that not only does interest in repatriating production to the U.S. and creating American jobs remain strong, but also that companies are acting on those intentions," said Harold L. Sirkin, a BCG senior partner and co-author of the firm's series on the shifting economics of global manufacturing, which was launched in 2011.

By a three-to-one margin, respondents also predicted that reshoring would create U.S. manufacturing jobs within five years. Fifty percent of respondents said that they expect to boost their U.S. manufacturing workforces by 5% or more. Only 17% predicted that their companies would be employing at least 5% fewer manufacturing workers in the United States five years from now. The survey findings reinforce a previous BCG estimate that reshored production, along with rising exports, could create between 600,000 and 1 million direct manufacturing jobs by 2020.

Another trend seen in survey findings is that U.S. manufacturers are increasingly considering factors other than direct costs such as labor when they devise their production strategies. More than 70% cited better access to skilled talent as a reason for moving operations to the United States, more than four times as many respondents as those who cited access to talent as a reason for relocating production outside the United States. For goods that would be sold in the United States, around 80% cited logistical reasons, such as shorter supply chains and lower shipping costs, as primary reasons for moving operations to the United States from other countries.

"We have long advised companies to look at the total cost of manufacturing in the United States and to consider the entire supply chain, not just the obvious factors such as wages," said Michael Zinser, a BCG partner who leads the firm's manufacturing practices in the Americas. "When companies take a holistic view, the U.S. increasingly comes out ahead, particularly if those products are to be consumed in the U.S."

Another noteworthy and hopeful finding in this year's study, according to BCG, is that respondents indicated that the United States had surpassed Mexico as the most likely destination for new manufacturing capacity to serve the U.S. market. While the percentage of executives who chose the United States rose from 26% to 27%, the percentage who chose Mexico slipped from 26% to 24%.

Respondents also predicted that the United States would account for an average of 47% of their total production in five years, reflecting a 7% increase in U.S. capacity compared with last year's results. Only 11% of their capacity would be in China, a 21% decrease from last year.

"The combination of improved U.S. cost competitiveness in terms of labor and energy and the increased productivity that can be gained from advanced manufacturing technologies makes the case for manufacturing in America even stronger," said Justin Rose, a BCG partner and coauthor, along with Sirkin and Zinser, of the study.

About the Author(s)

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

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