Manufacturing Economy Continues to Grow Modestly

By Susan Avery

September 01, 2015 at 1:55 PM

Brad-Holcomb-217x300.jpg“Some would say lackluster, but I would say modest,” said Bradley J. Holcomb, Chair of the ISM Manufacturing Business Survey Committee, of growth in the manufacturing economy based on the PMI for August 2015 released on September 1. As he does each month, Holcomb appeared on Manufacturing Talk Radio to talk Host Lew Weiss and his listeners through the ISM Report on Business.  

Manufacturing Talk Radio is broadcast online on Tuesdays at 1 pm to 2 pm Eastern Time. 

At 51.1%, the PMI is down 1.6 percentage points from the July reading, and is at the lowest point of the year. Still, indexes that make up the PMI--New Orders, Production, Employment and Supplier Deliveries are continuing to post above 50%.  

A reading above 50% means the manufacturing economy is growing. (Below 50% means it’s contracting.) “It’s been growing for 32 consecutive months,” Holcomb said, explaining that the average PMI for January through August 2015 is 52.4%, and the 51.1% is only 1.3% below that average. “I would say it’s the continuation of a modest growth year that’s we’ve experienced since January."  

Holcomb pointed out that the reading is less than what he and others forecasted in December, 2014, which he attributes to several factors that occurred earlier this year including bad weather, the West Coast ports situation and a stronger dollar. While these have essentially cleared, other factors are cropping up.  

Five equally weighted indexes make up the PMI: New Orders, Production, Employment, Supplier Deliveries and Inventories. The August, 2015, report shows:

  • The New Orders Index registered 51.7%, down 4.8 percentage points from the reading of 56.5% in July, a fairly sizable drop. Seven industries are reporting growth in new orders. Seven are seeing declines. Four remain pat from the month before.  
  • The Production Index registered 53.6%, 2.4 percentage points lower than the reading in July, but still above 50%. Here, eight industries are reporting growth, five declines. 
  • The Employment Index registered 51.2%, 1.5 percentage points below the July reading of 52.7%.
  • Supplier Deliveries are at 50.7%, an increase of 1.8 percentage points.
  • Inventories registered 48.5%, a decrease of 1.0 percentage points from the July reading of 49.5%. 

manufacturing at a glance august 2015.jpgOf the fall in New Orders, Holcomb says, “it’s not unprecedented. The index dropped 4.9 percentage points in January, 2015. Nevertheless, it’s something to note.”

He explains that uncertainty about the economy could be weighing on the minds of manufacturing supply executives. “Concerns about global markets, the Federal Reserve and the stock market which don’t relate directly to manufacturing do have people keeping dollars in their pockets,” Holcomb said. “I recommend the audience look at other reports and be attuned to what’s going on to make sense of this report and the economy in general.” 

As for the Employment Index, a reading of 51.2% suggests positive news when the government comes out with its statistics later in the week, Holcomb said. “Anything above 50 in our index generally corresponds to an increase in the Bureau of Labor Statistics number for factory employment. We’ll see if the rule holds.” 

Impact of Oil on Prices

Another Index that doesn’t feed into the PMI but is important to the manufacturing economy is Prices. At 39.9%, the Index shows raw materials prices have declined all year, for more than 10 consecutive months. These materials include metals, diesel fuel and resins and plastic products.

“The impact of lower oil prices is hard felt in the petroleum and coal products industry,” Holcomb said. “For other industries, this--lower raw materials prices and costs of running factories--translates into good news.”  

As he does on the show each month, Holcomb reads through comments expressed by the supply executives who complete the monthly survey. The value, he says, is that they are more forward looking than the readings for the month.

“Many comments are positive in terms of growth, and range from modest to steady to strong growth depending on the industry,” he said. The comments also reflect the positive impact of falling oil and raw materials prices as well as concern over the strong dollar and a lower level of exports.

 



Tags: purchasing Economy Supply chain management Prices Procurement commodities manufacturing sourcing
Category: Blog Post

Susan Avery

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Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com. 


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