Industrial Electronics

U.S. Manufacturers End 2013 on a High Note

06 January 2014

The domestic manufacturing industry closed 2013 on a much higher note than it opened.

The Institute for Supply Management's leading indicator, the PMI, registered an even 57 percent for the month of December 2013. Although December experienced a slight decline from the 57.3 percent mark in November, it is the second highest reading for the year.

A PMI reading above 50 percent indicates that the manufacturing economy is expanding; below 50 percent indicates that it is contracting.

"It's a nice way to finish off the year," said Bradley J. Holcomb, chair of the ISM's Manufacturing Business Survey Committee. The PMI reading remained consistent during the second half of 2013 and with the ISM's semi-annual forecast published in early December. Looking forward, the ISM expects the first half of 2014 to be better than the third and fourth quarters of 2013; and the second half of 2014 to be better than the first. With the exception of the recent two-year recession, said Holcomb, the ISM's semi-annual forecasts have been remarkably accurate.

U.S. manufacturers reported new orders in December decreased by 0.6 percentage points to 64.2 percent, which is still its highest reading since April 2010's 65.1 percent. The December employment index registered 56.9 percent, an increase of 0.4 percentage points compared with November. December's employment reading is the highest since June 2011 when the index registered 59 percent, according to the ISM. In the electronics sector, manufacturers of computers and electronics products reported good overall business conditions nationally and internationally.

Inventories and backlog showed some activity in December: raw materials inventory in December decreased by 3.5 percent to 47 percent. That's not necessarily bad news, according to Holcomb. "That number refers to raw materials inputs to manufacturing," he explained. "Production is up so that consumes a lot of inventory, but supplier deliveries are slowing at an even faster rate. Suppliers are having a hard time filling orders which is a good thing—it indicates tightness in the supply chain. I wouldn't call that level too low."

Of the 18 manufacturing industries tracked by the ISM, 13 are reporting growth in December. In order, they are: furniture and related products; plastics and rubber products; textile mills; apparel, leather and allied products; computer and electronic products; paper products; transportation equipment; primary metals; fabricated metal products; wood products; printing and related support activities; food, beverage and tobacco products; and miscellaneous manufacturing. The four industries reporting contraction in December are: nonmetallic mineral products; machinery; chemical products; and electrical equipment, appliances and components.

Based on the trends of 2013, "I would say things are settling down, and I expect the [2014] forecast will be pretty good," Holcomb concluded.

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