One of the two closely watched purchasing managers indexes shows that U.S. manufacturing is rebounding rapidly after a slowdown in January. The Markit Flash U.S. Manufacturing PMI rose by a full three points to 56.7 in February, the highest level in almost four years.
The Markit flash PMI, although it is a preliminary reading for the month, covering 85 percent of Markit Economics’ survey respondents, beat out economist forecasts of a median 53.6, and the three-point jump was the fastest rate of improvement in U.S. manufacturing business conditions since May 2010. The output component of the PMI leaped from 53.5 in January to 57.2, and new orders jumped from 53.9 to 58.8. Orders from overseas also turned around from January’s contraction, as the new export orders index went from 48.4 to 50.9.
The flood of new orders, combined with harsh winter weather that slowed manufacturing production in January, sent backlogs skyrocketing; that index rose 7.2 points to 56.4 for February. The accumulation of work-in-hand was the steepest since Markit Economics began the PMI in 2007. Manufacturing employment thus picked up steam, going from 53.2 to 54.0.
Chris Williamson, Markit Economics’ chief economist, noted that hiring “picked up to the fastest (level) since last March, with the survey signaling approximately 15,000 jobs being created in February.” He said the rebound in the PMI shows that manufacturing has rebounded from January’s weather-related slowdown and a three-month low. “Companies reported business returning to normal after freezing temperatures and snow disrupted operations and supply chains.
“While the strong PMI reading in part represents a rebound from the temporary weakness seen at the start of the year, further growth looks likely in coming months, suggesting the underlying health of the economy remains robust,” Williamson continued. He expects ongoing growth in production and hiring in March.
Markit Economics also released the monthly China flash PMI it produces with HSBC, which showed that manufacturing conditions in the world’s second-largest economy continued to deteriorate in February. The HSBC China Flash Manufacturing PMI fell to a seven-month-low 48.3, indicating further contraction on top of January’s 49.5 reading.
The country’s manufacturing output shrunk this month (49.2 reading), as opposed to weakened output expansion at the beginning of the year (50.8). New orders, as well as work backlogs, retreated into negative territory, while overseas orders saw a slower rate of contraction. But the drop in Chinese manufacturing employment accelerated over January.
“February’s flash reading moderated further as new orders and production contracted, reflecting the renewed de-stocking activities,” said Hongbin Qu, HSBC’s chief economist for China and co-head of Asian economic research. “The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. We believe Beijing policymakers should and can fine-tune policy to keep growth at a steady pace in the coming year.”
While U.S. businesses have been slow to create jobs over the past two months, they are restraining from slashing payrolls.
Initial jobless claims for unemployment benefits dropped by 3,000 to a seasonally adjusted 336,000 in the week that ended on Feb. 15. This was in line with economists’ forecasts of 335,000 Americans filing new claims. According to a Reuters report, initial unemployment claims have steadied within the 325,000-348,000 range, “suggesting no fundamental shift in labor market conditions.”
Various reports have pinned muted job growth and subdued economic momentum at the start of 2014 to what has been an especially brutal winter season. Industrial production early in the year suffered, with manufacturing activity pinned down by blanketing snowstorms.
The four-week moving average for new unemployment filings was 338,500, an increase of 1,750 from the previous week’s unrevised average of 336,750. Harsh weather conditions may have not only slowed down industrial activity in January but triggered workforce dismissals as a result.
Cold weather also could have been behind an elevated number of continuing unemployment insurance claims in recent weeks, as low temperatures prevented many recipients from going out to search for work and companies from hiring, according to separate Reuters report.
Still, economists continue to remain upbeat on hiring, even though bitter winter conditions have thwarted their earlier positive predictions. “I think the fundamentals for stronger job growth are in place,” Ryan Sweet, senior economist at Moody’s Analytics, told Bloomberg, in a report. “We’re going to get some of the jobs that weren’t added in December and January because of weather,” though it may not be until March, he said.
The jobless claims report compiled by the Department of Labor is based on information supplied by states’ unemployment insurance programs. For the week that ended on Feb. 8, Georgia experienced a drastic weekly rise in new claims — 7,229 — and blamed layoffs in the manufacturing and construction industries, among others. Snowstorms have battered the state and managed to shut down major highways.
South Carolina and Alabama also reported significant manufacturing layoffs.
The national unemployment rate is 6.6 percent. The next jobs report is due out on March 7.
U.S. businesses sent a record number of exports for the fourth straight year, totaling nearly $2.3 trillion in 2013, according to a report the Department of Commerce released earlier this month. Instrumental in that all-time-best effort were 16 states that set record export levels, as well.
The states that set new records for exports in 2013 were:
Texas — $279.7 billion
California — $168.1 billion
Washington — $81.9 billion
Louisiana — $63.1 billion
Michigan — $58.5 billion
Ohio — $50.5 billion
Georgia — $37.6 billion
Tennessee — $32.4 billion
North Carolina – $29.3 billion
South Carolina — $26.1 billion
Kentucky – $25.3 billion
Connecticut — $16.5 billion
Mississippi — $12.4 billion
Maryland – $11.8 billion
Colorado — $8.7 billion
Oklahoma — $6.9 billion.
Ten additional states experienced growth in merchandise shipments to foreign customers. The Commerce department commented that U.S. companies sent record amounts of goods to Canada (2.7 percent rise over 2012), Mexico (4.7 percent), Colombia (13.8 percent), Panama (9.6 percent), Peru (7.6 percent), and Jordan (18.2 percent).
Executives, managers, and employees almost universally acknowledge that company culture is critically important to organizational change transformation and business success. However, there is a clear disparity between the way companies view culture and the way they treat it, according to management consulting firm Booz & Co.’s 2013 Culture and Change Management Survey.
Less than half of the 2,200 survey participants saw their companies effectively managing culture, and more than half said major culture overhauls are needed at their organizations. Moreover, Booz & Co. says only half of organizational change initiatives accomplish and sustain their goals, in its report, “Culture’s Role in Enabling Organizational Change: Survey Ties Transformation Success to Deft Handling of Cultural Issues.”
Almost half — 48 percent — of respondents said their companies don’t have the capabilities to ensure sustained change, even as 84 percent thought culture was an essential change-driver. Only 45 percent of employee survey respondents said their companies are effective in managing company culture.
The failures are partially attributed to negative culture or the lack of culture-enabled transformation, which Booz & Co. notes is an important component in a “more holistic approach to change” that it recommends to organizations for sustainable transformation programs. Another particular obstacle is when an attempted organizational transformation is seen as being contrary to the established company culture.
Other reasons for change failures were “change fatigue” (65 percent), when stakeholders are asked to change too much at once; management’s lack of change skill and ability; and employee resistance, which was broken down to lack of understanding of (44 percent) and disagreement with (38 percent) the requested changes.
In failed transformation initiatives, corporate culture considerations were usually “an afterthought,” wrote the report’s authors. Despite respondents seeing 60 percent seeing culture as a “bigger success factor” than either organizational strategy or operating model, only 24 said their companies use culture as “a source of energy” in change efforts, and among those who said their change programs didn’t succeed, only one-third saw their companies “as trying to leverage employees’ pride in, and emotional commitment to, their organizations.”
On the other hand, 70 percent of respondents who said their company change efforts were sustained saw their organizations take advantage of employee pride and commitment, and 56 percent attributed culture to being a source of energy and influence in successful change.
Although the authors of the Booz & Co. report noted that most traditional business transformation projects don’t consider culture, while adding, “[t]his is not to denigrate traditional change levers – including top-level diagnostics, organizational design, performance management, metrics, and incentives,” they advocate culture-led transformation. Still, they cautioned,” Culture is not a shortcut to successful corporate change. Nor is culture-led transformation less rigorous than more conventional types of transformation — it involves just as much time and effort.”
Booz & Co., which dubs itself a “practical strategist” for clients, outlines five steps for a culture-led transformation. It recommends organizations to (1) do a “culture diagnostic,” finding the strong and weak ways a company does things; (2) establish a set of “critical few” behavioral change goals, starting a change initiative from a small base; (3) re-establish employee pride and commitment, finding ways to boost employee morale and emotional stake; (4) create peer networks, where culture change is promoted and sustained by employees at levels below management; and (5) engage with storytelling, as success stories and defining moments can serve as natural pride and behavior reinforcements.