AMT Viewpoint: Throw Caution to the Wind? No, but Don't Give In to Doom

May 27, 2014

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Pat McGibbon, Association For Manufacturing Technology’s vice president of intelligence, says U.S. manufacturing and the economy are susceptible to market sentiment more than anything right now. Nearly all the metrics are positive and suggesting a few more quarters of growth at minimum. 
This month there seemed to be an edge in the conversations I had with some industry executives at metalworking machinery suppliers. It centered around where the economy is going and, more specifically, whether manufacturing technology orders are on a downward trend. The trend data, presented in the chart below in simple arrows, suggests that there will be at least another quarter of growth in machinery orders, which, in turn, suggests that manufacturing is still gliding along. 

The outlook for the economy, provided by the Institute for Trend Research and Oxford Economics, and the demand for manufacturing technology orders continue to be positive through the end of 2015. There will be fluctuations, of course, but analysts don’t see the need for manufacturers to be overly cautious now. In fact, many economic gurus feel there is a greater risk that U.S. companies’ concerns could lead to a downturn more than any financial or economic issue. My advice is to be cautiously optimistic.

Start with the data. Notice that the top 10 indicators have no negative readings and only one cautionary reading (yellow arrow). This suggests that machinery orders and thus manufacturers’ capital investment activity will continue to grow modestly over the next one to two quarters. Even the yellow arrow -- the Baltic Dry Index, which measures demand for shipping capacity versus the supply of dry bulk carriers -- could be called an anomaly, as the basis for the recently low index numbers has been an influx of new shipping resources into merchant fleets rather than a decline in goods being shipped.

The Purchasing Managers Index (PMI) of the Institute for Supply Management continues to climb further beyond the baseline number of 50, which suggests continued manufacturing expansion. Housing starts are edging upward and are likely to increase even more significantly in the coming months, based on the increased number of building permits approved in April.

Interest rates really can’t get much lower than they are now, so the lights are green on home investments, capital expenditures, and replacing the durable products that typically require financing. Auto sales have had a great run from the beginning of the year to the present and are now at roughly an annualized 16 million unit rate.

Sure, there are some harsh numbers out there to consider. Estimated GDP growth for the first quarter of 2014 was a mere 0.1 percent. April’s labor report showed that the number of unemployed workers fell below 10 million for the first time since September 2008 — but it was the result of more than 800,000 workers dropping out of the workforce, i.e., making the decision to stop looking for work. Finally, while the expected strengthening of the dollar through the rest of the year is good for the consumer, a stronger dollar means U.S. exports will be more expensive in foreign currencies.

What am I getting at? In The Edgy Optimist, Zachary Karabell’s blog on Slate, the economist recently wrote a post titled ”Cassandras Everywhere.” He drew it out very nicely when he wrote, “Being attuned to the possibilities and paying attention to potential issues is imperative, but being drawn into the cult of doom is a step toward it. We can listen to the chorus. But join it? No.”

Keep the faith. There are still lots of machinery orders floating out there, which is a good sign, and the second quarter will be stronger than the first for manufacturing.

If you have any questions, don’t hesitate to contact me at pmcgibbon@amtonline.org.

pat mcgibbon amt may 2014 economic chart

Click to enlarge. Source: Association For Manufacturing Technology

 

Top photo credit: artur84 at FreeDigitalPhotos.net

 

MORE FROM PAT McGIBBON: Machinery Investment Is Primed for Growth 

 

Pat McGibbon - AMTPat McGibbon is vice president of industry intelligence and engagement for AMT – The Association For Manufacturing Technology. Based in McLean, Va., AMT represents and promotes U.S.-based manufacturing technology and its members — those who design, build, sell, and service the continuously evolving technology that lies at the heart of manufacturing. For more, visit AMT’s website at www.amtonline.org.
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