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Industrial & Medical Technology

U.S. Manufacturing Moves Full Speed Ahead

05 November 2014

The U.S. manufacturing industry fired on all cylinders during the month of October, experiencing growth in nearly all sectors. The single misfire – exports decreased by 2 percent last month – has more to do with foreign economies than domestic supply and demand.

The Institute of Supply Management’s (ISM) PMI – a leading index of domestic manufacturing trends – reached 59 percent in October, according to the ISM, a 2.4 percent increase from the prior month. An index above 50 indicates the economy is growing; a number below 50 indicates contraction.

New orders, production and employment also grew during the period. Exports reached 51.5 percent—still growing—but were down from 53.5 percent in September. “Exports are certainly an interesting number relative to the global economy,” said Bradley J. Holcombe, chair of the ISM’s Manufacturing Business Survey Committee. “We continue to hear about the soft economies in Europe and China – two of our major export partners—so there’s not much we can do. Exports have been positive for 23 consecutive months, so [October’s level] is the only thing that jumps out at you as a potential future concern.”

Production, however, reached a 10-year high of 64.8 percent, up 0.2 percent from the prior month, while manufacturers’ backlog of orders increased 6 percent to 53.0 percent. “The increasing backlog of orders indicates manufacturing can’t even keep up demand – which is a good thing,” Holcomb said. There’s no shortage of production capacity, he added; the rising backlog level is more a matter of labor. “A number of sectors have referred to difficultly finding skilled labor for several months. While there is a labor constraint, it also shows the potential for increasing the labor force.” Employment levels increased 0.9 percent in October to reach 55.5 percent, according to the ISM. “Employment has been growing for 16 consecutive months,” Holcomb added, “and manufacturers don’t want to be adding labor too quickly.”

Although prices are still in growth mode – October’s level was 53.5 percent – they are increasing more slowly. Prices declined by 6 percentage points between September and October, largely driven by the energy sector.“Both diesel and gas prices are down," said Holcomb, "and that shows up in the favorable comments by several manufacturing sectors, such as fabricated metals, which uses a lot of energy. Fuel prices seem to be creating demand above normal in some sectors, such as food, beverage and tobacco: People are saving money at the gas pump and spending it at the grocery store.”

Customer inventories have been hovering below the 50 percent level and are still considered too low by the ISM committee. October’s 3.5 percent increase to 48, however, does show customers are replenishing their stock. “There is a propensity for customers to order more when we see production and backlog go up,” said Holcomb. “That’s what happened this time. The level is getting closer to 50, so we are seeing customers restocking their shelves in anticipation of demand.”

The electronics industry isn’t growing as fast as other sectors, but businesses are still seeing an upward trend month-to-month, the ISM reports. It remains unclear whether there has been a significant switch toward high-tech manufacturing onshore. The ISM expects to have more data by its semi-annual report, due in December.

Related links:

IHS Semiconductor Manufacturing

News articles:

U.S. Manufacturing Caps Strong Q3

Manufacturing Defies ‘Dog Days’ of August

U.S. Manufacturing: New Orders and Employment up in July

First Half of 2014 Closes Strong for Manufacturing

U.S. Manufacturing Growth Builds Momentum

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