Monday, May 6, 2013

US GDP Overview: Manufacturing

Continuing with our look at the current state of the US economy, let's turn to the manufacturing sector, starting with the latest ISM report:

"The PMI™ registered 51.3 percent, a decrease of 2.9 percentage points from February's reading of 54.2 percent, indicating expansion in manufacturing for the fourth consecutive month, but at a slower rate. Both the New Orders and Production Indexes reflected growth in March compared to February, albeit at slower rates, registering 51.4 and 52.2 percent, respectively. The Employment Index registered 54.2, an increase of 1.6 percentage points compared to February's reading of 52.6 percent. The Prices Index decreased 7 percentage points to 54.5, and the list of commodities up in price reflected far fewer items than in February. In addition, the Backlog of Orders, Exports and Imports Indexes all grew in March."

Overall, the sector is still in expansion, albeit at a slower pace in the latest report.  Here's a graph of the relevant data:

Overall, the ISM index has been above the 50 mark for over three years, with the exception of a few data points.  Put another way, manufacturing has been doing well for a majority of the expansion.

With the exception of a few dips, the new orders index has also been showing expansion for about three and a half years.

And the overall business activity index has been strong as well, printing between 55 and 60 for over three years.

Let's turn to the ISMs anecdotal quotes:
  • "Beginning to feel the seasonal upswing in business — energy and resin remain a concern." (Food, Beverage & Tobacco Products)
  • "Medical reimbursements from insurance companies, particularly Medicare, are slowing." (Miscellaneous Manufacturing)
  • "While the second half of 2013 looks promising, the first half is a mixed bag." (Computer & Electronic Products)
  • "Things seem slightly better than last year, but still not great." (Printing & Related Support Activities)
  • "Automotive is still very strong." (Fabricated Metal Products)
  • "Post-election in the U.S. — companies within the oil and gas sector are still waiting for signs of some regulatory certainty or stability." (Petroleum & Coal Products)
  • "Reduced government spending in the defense sector lowers business output." (Transportation Equipment)
  • "Business is continuing to be brisk." (Furniture & Related Products)
  • "Market continues to be strong, and our production is exceeding plans at this time." (Wood Products)
  • "Sales are low, even adjusted for seasonal variation." (Chemical Products)

The quotes are a mixed bag.  Some sectors are hurting (defense, oil and gas, computer and electronics, chemical products), while others are doing a bit better (food and beverage and furniture and related products).  However, the report also noted that 14 of 18 industries reporting were expanding.

Let's turn to the latest Markit manufacturing report, starting with their summation:
  • PMI signals modest improvement in manufacturing business conditions during April
  • New order growth slows sharply
  • Weakest rise in output in five months
  • Rate of input price inflation eases to eight-month low
While the number is still positive it's showing a potential slowing.  Here's a reading of the data:

Overall, all the major categories are still in positive territory; we need to see a few more months of data before we can confirm that the trend is dropping into negative territory.

The bottom line is the manufacturing sector is still expanding.  There may be some clouds on the horizon according to the Market report, but we definitely need more data to make that call official.