Plus: Manufacturing Sector Returns to Growth, Factory Orders Decline, Machinery Demand Rises, Unemployment Rate Sharply Drops and Manufacturing Day Attracts More than 200 Companies.
Manufacturing Sector Resumes Growth
The United States manufacturing sector resumed expanding in September, ending a three-month period of contraction and easing concerns about a broader slowdown in the U.S. economy. According to the Institute for Supply Management’s (ISM) latest manufacturing Report on Business, the gain was driven by improvement in demand, production and employment.
ISM’s purchasing managers’ index (PMI), a key monthly gauge of the factory sector, rose to 51.5 in September, up from 49.6 in August and the first growth reading since May. Readings above 50 indicate overall expansion for the sector. The latest PMI was only slightly below the 12-month average of 52.2. The new orders index jumped to 52.3, up from 47.1 in August, while the employment index rose to 54.7 from 51.6 the prior month.
“Stocks extended gains after the figures showed American factories are holding up in contrast to their counterparts in Europe and Asia,” Bloomberg News reports. “Sustained strength in motor vehicle sales and a rebound in demand for home construction materials are helping cushion manufacturers from weaker exports and cutbacks in business investment.”
Despite the overall improvement, there were some signs of continuing difficulty in the manufacturing sector. The production index climbed to 49.5 in September, up from 47.2 in August, but remained in contraction for the second consecutive month. Likewise, exports increased last month to 48.5 but also remained in contraction for the fourth month in a row, largely due to considerable slowdowns in international markets.
“This September ISM survey provides the first hint that the pronounced slowdown in U.S. manufacturing that set in after the first quarter of the year may be poised for a turnaround,” Don Norman, senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), said. “It remains the case, however, that the crisis in the Eurozone, slowing growth in China and fears of going over the ‘fiscal cliff’ could nip in the bud any turnaround. It will take continued improvement in the ISM index before we can have confidence that the tide has indeed turned. In the meantime, slow growth remains the most likely short-term outlook for U.S. manufacturing.”
Electric Car Supply Far Outstrips Demand
The electric vehicle industry is struggling to sell cars, despite a $2.4 billion grant program launched by the Obama administration that was intended to accelerate manufacturing and add jobs to the industry.
The grants, part of the American Recovery and Reinvestment Act, were announced in 2009 and included $500 million to U.S.-based manufacturers of electric drive components for vehicles. Three years later, there is an excess of electric vehicle battery production as electric car sales fall behind forecast numbers.
Amid weak vehicle sales, a new report from the Congressional Budget Office claims that federal support to accelerate electric vehicle purchases will cost taxpayers $7.5 billion through 2019, which includes tax credits for consumer electric vehicle purchases and $5.5 billion in grants to boost battery and electric vehicle production.
The high cost of electric vehicles, which can sell for twice as much as gas-run vehicles, poses a challenge. With electric vehicle sales lagging, the battery industry is also struggling to survive. Stimulus-funded factories that fail to find customers are forced to lay-off employees and reevaluate their business. Other reports reveal that automakers faced with rising costs are turning to Asian battery manufacturers for their electric vehicles.
Factory Orders Plunge
New orders for U.S. manufactured goods decreased 5.2 percent in August, following a 2.6 percent increase in July and marking the largest single-month decline since January 2009, according to the U.S. Department of Commerce. The value of new orders fell by $24.9 billion to a total of $452.8 billion for the month.
New orders for manufactured durable goods fell 13.2 percent to $198.3 billion in August, following three consecutive monthly gains. Transportation equipment posted the steepest drop, plunging 34.9 percent down to $52 billion. Excluding the often volatile transportation category, new orders actually rose 0.7 percent in August. Construction equipment orders rose 13.8 percent, industrial machinery orders increased 10.6 percent and orders for electrical equipment rose 3.8 percent.
On another positive note, orders for capital goods (excluding aircraft and defense equipment), which serve as an indicator of future business investment, rose 1.1 percent after declining 5.6 percent and 2.7 percent in the prior two months. This indicates companies are growing less reluctant to spend. Meanwhile, goods shipments, down two of the last three months, fell 0.3 percent to $476.9 billion.
“Still, U.S. manufacturers face several challenges ahead. Europe’s financial crisis has pushed six of the 17 countries that use the euro into recession, a development that threatens exports of U.S. goods,” the Associated Press notes. “And economies in other parts of the world, including big U.S. export markets such as China, India and Brazil, are also seeing slower growth.”
Manufacturing Tech Demand up in August
Year-to-date manufacturing technology orders were up 4.1 percent over 2011, according to the Association for Manufacturing Technology’s (AMT) August U.S. Manufacturing Technology Orders (USMTO) report.
August orders totaled $470.44 million, while the year-to-date total was $3.6 billion, according to data provided by AMT member companies. Of the five regions tracked by the USMTO report, the Northeast was the only region that experienced contraction, dropping 23.9 percent to $49.18 million from July to August.
The Southern region experienced a 1 percent increase over July, climbing to $64.77 million, the Midwest saw orders increase 11 percent to $152.95 million, the Central region posted a 4.8 percent increase to $124.49 million and the Western region saw a 13.5 percent increase to $79.04 million in August.
“It’s a great sign for the industry to see both month-to-month and year-over-year gains in August, historically one of the slowest months for orders,” Douglas K. Woods, AMT President, said in a statement. “With U.S. manufacturers still working through 5 months’ worth of backlogs along with what seemed to be exceptional order activity at IMTS this September, we may very well see a record year for USMTO over and above the last peak in 2011.”
Unemployment Rate Drops to Nearly 4-Year Low
The U.S. labor market added 114,000 non-farm jobs in September, driving the national unemployment rate down to 7.8 percent, the lowest level since January 2009, according to the U.S. Department of Labor. Despite the modest number of jobs created last month, part of the improvement was due to upward revisions for prior months, which showed that 86,000 more jobs were added in July and August than initially estimated.
“Economists had expected the unemployment rate to rise to 8.2 percent in September. The drop last month came even as Americans returned to the labor force to resume the hunt for work. The workforce had shrunk in the prior two months,” Reuters reports. “Taken together, economists said the report broadly signaled a healthier labor market. The employment-to-population ratio, or the proportion of the working-age population with a job, increased to its highest level since May 2010.”
The largest employment gains last month were in the health care industry, which added 44,000 jobs, followed by transportation and warehousing, which grew by 17,000 jobs. Meanwhile, manufacturing employment dropped by 16,000 positions, with the steepest loss in computer and electronic products manufacturing, which shed 6,000 jobs. In terms of net gains and losses, manufacturing employment has remained relatively unchanged since April.
On a weekly level, new initial jobless claims increased by 4,000 for the week ending September 29, reaching a total of 367,000. However, the four-week moving average, which provides a more accurate picture of longer-term trends, stood unchanged at 375,000.
Manufacturing Day Draws Hundreds of Companies
More than 200 manufacturing companies participated in the first annual Manufacturing Day on Friday Oct. 5th, a nationwide event to increase awareness of manufacturing’s role in the economy and improve public perception about the contributions made by manufacturers.
“Manufacturing is at the forefront of the national conversation, and Manufacturing Day showcases how important the sector is for economic growth and job creation,” National Association of Manufacturers (NAM) President and CEO Jay Timmons, said in a release on the event. “By opening up shopfloors around the country, we were able to show what manufacturing is all about—a high-skilled, technology-driven industry that offers secure, good-paying jobs.”
The day – co-produced by the Fabricators and Manufacturers Association, International; the Hollings Manufacturing Extension Partnership (MEP); NAM and the Manufacturing Institute – featured open houses, public tours, career workshops and other events in factories and manufacturing businesses across the U.S. Much of the focus was on getting a new generation of students excited about a career in manufacturing, and to help close the skilled workforce gap.
“Access to talented individuals with a high-quality education and advanced skills is critical to manufacturers’ capacity for innovation and business success,” Jennifer McNelly, president of the Manufacturing Institute, noted in the release. “Today’s talent does not view manufacturing as a top career option. This perception issue, coupled with the skills gap, has contributed to a depleted supply of qualified talent for today’s manufacturing workplaces. Manufacturing Day is an important step in helping to change manufacturing’s image and engaging future talent by giving them firsthand experience with the real world of manufacturing.”