U.S. factory output posted an unexpectedly sharp rebound in February that all but reversed January’s weather-caused setback, offering an encouraging sign of an economy that is once again picking up momentum. The 0.8 percent expansion in the production of goods, the biggest spurt in six months, virtually offset the revised 0.9 percent drop at the start of the year. The robust manufacturing growth also propeled the industrial production index to a 0.6 percent increase, its biggest gain in three months despite output reversals in the nation’s mines and power plants.
From motor vehicles to defense/space equipment to business equipment, many of the nation’s factories powered back up again after severe snowstorms in January caused delays of supplies and parts and slowed production. February’s growth in manufacturing exceeded 0.2-0.3 percent uptick consensus among economists.
“You had a terrible January and a good February and we’re basically where we were in December,” Michael Feroli, chief economist at JPMorgan Chase & Co., told Bloomberg. Bloomberg reported that auto assemblies increased in February to an 11.4 million annual pace. Motor vehicle and part production in the Federal Reserve’s report showed a turnaround from January of -5.2 percent to 4.8 percent.
“It has been an interesting start to the year with weather,” John Felice, Ford’s vice president of marketing, said in Bloomberg. “We feel that as we head into March, we’ll be in very good shape.”
Like automobile production, consumer goods output shadowed overall manufacturing growth by expanding 0.8 percent. The nearly full turnaround in output of manufactured durables, from -2.7 to 2.1 percent, also mirrored the bounce-back of the overall manufacturing sector for February.
Manufacturers of both chemical and paper products were humming once again, as paper makers showed a resurgence from January’s -1.2 percent dive to 1.1 percent growth last month, and chemicals makers jumped from 0.1 to 0.9 percent growth.
February production rises in business equipment (1.3 percent) and business supplies (0.7 percent) also reflected the pick-up in capital spending in January reported separately by the Department of Commerce. Huge orders in January had makers of industrial equipment churning at twice the pace (1.6 percent expansion) last month than at the start of the year. The indexes for machinery and fabricated metal products each moved up around 1.5 percent.
That should bode well for mining output, which softened from 0.5 percent to 0.3 percent growth in February. Meanwhile, after a 3.8 percent surge in output in January driven by home heating demand, utilities ouput eroded by 0.2 percent last month.
At 2.8 percent above its year-earlier level, the output of business equipment could foreshadow much greater industrial activity in the United States as the year heads into the warmer months. Business supplies output was 3.1 percent higher than in February 2013 and more than reversed a January decline. Sizable increases in chemical and paper materials also serve as a reinforcing sign of industrial growth ahead.
Manufacturers are continuing to pare stockpiles, which should be eased by greater short-term demand. Returning to more normal production levels in February, manufacturing sector’s capacity utilization rate moved up from 75.9 to 76.4 percent – still 2.3 percent below its long-run average.
The Fed last week announced beginning in April, it will reduce its economic stimulus program to $55 billion in bond purchases per month. It is the third tapering of the Fed’s once-$85 billion per month asset purchasing policy to stabilize the post-recession economy. Although it remarked that adverse winter weather had slowed economic activity, it said “there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.”
Jobless Claims In Line with Stabilized Job Market
Initial jobless claims for unemployment benefits rose by 5,000 to 320,000 for the week that ended March 15. Although there were slightly more layoffs by employers, the figure still came in below consensus compared with the 325,000 figure forecast by economists. It is also hovering near a four-month low.
The four-week moving average for new claims, considered a better measure of underlying labor market conditions because it smooths out week-to-week volatility, dropped by 3,500 to 327,000 claims. Claims fell by 14,000 between February and March, as Reuters reported. U.S. businesses added 175,000 positions in February, and barring an unexpected drop in new hiring numbers for March, the data are in line with the Federal Reserve’s expectation that the national labor market will continue to improve gradually.
Also contributing to the improved numbers was the easing of sever winter weather, which kept many Americans from seeking employment opportunities and led to elevated claims. The national unemployment rate is at 6.7 percent
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 March 8, only Pennsylvania saw an increase of more than 1,000 new claims as a result of layoffs in the food service, administrative and support services, and construction industries.
New York saw a whopping 17, 548 drop in initial claims because of fewer layoffs in the transportation and warehousing, educational services, and food services industries. Manufacturing businesses in Michigan held steadier payrolls, which led to a decrease of nearly 2,000 new jobless claims for the week.
The number of people receiving unemployment benefits in the week that ended March 8 was 2.89 million. While that was 41,000 more than the previous week’s figure, the four-week moving average was 16,750 lower than the previous reading. The March 8 number was also 188,000 fewer than the same week in 2013.
Standardized Skills Effort Is Working, Consortium Says
The Manufacturing Institute and its partners in the Skills Certification System are nearing 300,000 issued certifications and its five-year goal of awarding 500,000 individuals training or working in various manufacturing industries, from engineering to skilled production.
Over the past year, 117,189 certifications have been awarded, bringing the total to 294,478 certifications issued since 2011. The Skills Certification System seeks to align the work and training programs of high schools, community and technical colleges, and employers to a national set of standardized skills needed in metalworking, construction, transportation and logistics, quality assurance, and other manufacturing-related disciplines.
The Manufacturing Institute is affiliated with the National Association of Manufacturers. The Skills Certification System has roughly 14 areas, notably welding, sheet metal fabrication, and machining. Certifications are “stackable,” meaning that they are built upon a foundation of basic academic and workplace requirements and followed by occupation-specific and specialized skills. Students and workers earn portable and industry-validated credentials that can be carried from state to state and are universally recognized by manufacturing employers.
The certifications were created to address the skills gap in the employment pipeline many manufacturers are reporting when they attempt to hire workers for their production floors. Manufacturers also note that the skills gap is being exacerbated by the retirements of skilled journeymen from the Baby Boomer generation.
“The shortage of qualified, skilled workers has a direct impact on manufacturers’ bottom line,” said Blake Moret, senior vice president of the Control Products and Solutions business at Rockwell Automation, and Chairman of The Manufacturing Institute’s Board of Trustees. “They represent the skills manufacturers need in their talent pipeline.”
“The shortage of qualified, skilled workers has a direct impact on manufacturers’ bottom line,” said Blake Moret, senior vice president of the Control Products and Solutions business at Rockwell Automation, and chairman of the Manufacturing Institute’s board of trustees. “The Skills Certification System is designed by and for industry. They represent the skills manufacturers need in their talent pipeline.”
The Manufacturing Skills Certification System’s certification partners include: ACT, the American Society for Quality (ASQ), the American Society of Transportation and Logistics (ASTL), the American Welding Society (AWS), the Association for Operations Management (APICS), the Fabricators and Manufacturers Association (FMA), the International Fluid Power Society (IFPS), International Society of Automation (ISA), the Manufacturing Skills Institute (MSI), the Manufacturing Skill Standards Council (MSSC), the National Institute of Metalworking Skills (NIMS), the North American Die Casting Association (NADCA),the National Center for Construction Education and Research (NCCER), the Packaging Machinery Manufacturing Institute (PMMI), and SME.
Metal Forming Companies Expect to Be in Better Shape
The most recent Precision Metalforming Association (PMA) Business Conditions Report indicates metal forming companies expect a slight improvement in business conditions during the next three months.
The report shows that 38 percent of participants predicted that economic activity will improve during the next three months, up from 32 percent in February. That accounted for all of the percentage shift in those who think activity will remain unchanged, at 54 percent compared to 60 percent last month, since the same percentage (8 percent) as in February believe that economic activity will decline.
Average daily shipping levels improved modestly in March. Forty-eight percent of participants reported that shipping levels are above levels of three months ago (up from 46 percent in February), 37 percent reported that shipping levels are the same as three months ago (compared to 31 percent last month), and 15 percent reported a decrease in shipping levels (down from 23 percent in February).
However, metal forming companies anticipate a slight dip in incoming orders during the next three months, with 44 percent forecasting an increase in orders, down from 50 percent in February. Forty-five percent are expecting no change (compared to 41 percent in February), and 11 percent are predicting a decrease in orders (up from 9 percent in February).
The percentage of metal forming companies with a portion of their workforce on short time or layoff rose to 11 percent in March, up from 6 percent in February. The March figure is at the same level as it was in March 2013.
“Business conditions continue to be quite positive in the overall metal forming industry,” said William Gaskin, PMA’s president. “Companies continue to be cautious, due to higher costs of health care, continued threats of increased regulatory burdens, and the failure of job figures to rise as they should if the economy is on a path to a stronger recovery. However, in a separate PMA monthly orders and shipment report, there were strong numbers posted for January new orders and shipments. It looks like Q1 is off to a good start, and this month’s Business Conditions Report suggests that this should continue for at least the next few months.”
The PMA represents the $113 billion North American metal forming industry of stamping, fabricating, spinning, slide forming, and roll forming. Its nearly 900 member companies include suppliers of equipment, materials, and services. The March Business Conditions Report sampled 117 metal forming companies in the United States and Canada.
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