Weekly Industry Crib Sheet: December PMI Shows Another Month of Manufacturing Expansion
January 6, 2014
The manufacturing sector continues to look rosy according to the Institute for Supply Management's latest PMI. The index for December 2013 finished at 57 percent, indicating that growth slowed just slightly when compared with November 2013's 57.3, but it was still last year's second-highest monthly reading. New orders, production, and manufacturing employment are all growing, while inventories are contracting and supplier deliveries are slowing.
Thirteen out of 18 manufacturing industries that ISM covers expanded last month, led by furniture, plastics and rubber products, and textiles. Transportation equipment finished in the middle of the pack. The industries that contracted included machinery, chemical products, nonmetallic mineral products, and electrical equipment, appliances, and components. The pace of imports remained still with a sub-index reading of 55.0.
The ISM report noted that the U.S. economy grew for the 55th straight month despite a slowdown. The nation's supply executives who report in to ISM generally said December was a solid final month of 2013. It was also the seventh consecutive month of growth for the manufacturing sector, since a contraction in activity last May.
New orders jumped from 63.6 in November to 64.2, the highest reading since April 2010's 65.1. Manufacturing employment was also at its highest level in two-and-a-half years, registering 56.9 versus June 2011's 59.0. Employment grew the most in the textiles industry last month.
Manufacturers were working off their inventories last month, as the sub-index dwindled by a significant 3.5 percent to 47.0, which represents actual contraction rather than just deceleration of growth. But eight industries reported higher inventories in December: wood products, petroleum and coal products, nonmetallic mineral products, furniture and related products, paper products, computer and electronic products, transportation equipment, and electrical equipment, appliances, and components.
Production among manufacturers in the month slowed down from 62.8 to 62.2. But order backlogs slowed, as well, from 54.0 to 51.5.
However, a detriment to manufacturers was that raw materials price growth continued to accelerate to 53.5; it was the fifth straight month of higher prices. Commodities such as corrugated packaging, galvanized steel, methanol, plastics resins, stainless steel, steel, and wood were more expensive. MRO products, aluminum, office supplies, hydraulic components, brass, corn-based products, and all-important fuel purchases were less expensive in December. There were no commodities in shortage.
Another setback for manufacturers was the big 4.5 percent slowdown in export activity, though exports were still growing, at 55.0.
U.S. factory orders bounced back in November, expanding by 1.8 percent after a revised 0.5 percent dip in October, according to Commerce Department statistics released today. Orders for manufactured goods for the month totaled $497.9 billion, which was reported to be in line with economists' expectations.
Part of the rebound came from transportation equipment orders, which leaped by 8.3 percent to $81.1 billion, after a revised 3.5 percent drop in October. New orders for durable and nondurable goods rose by 3.4 percent and 0.3 percent, respectively.
Manufacturers' shipments rose by 1 percent (to $494.6 billion), as did unfilled orders, but the unfilled orders-to-shipments ratio crept up from 6.39 in October to 6.42. Notably, shipments of machinery increased by 4.2 percent to $35.5 billion.
Inventories ticked up by $0.2 billion to $633.4 billion, but with the rise in shipments, manufacturers were able to trim the inventories-to-shipments ratio from 1.29 to 1.28 in November. The rise in inventories was led by transportation equipment with a 0.4 percent increase from the previous month.
Orders for motor vehicle components grew by 2.4 percent to $20.3 billion, while orders for nondefense aircraft and parts skyrocketed by 21.8 percent and defense aircraft and parts rebounded with a 10.1 percent increase.
Machinery orders expanded by 3.3 percent to $35.8 billion, after a revised 0.9 increase in October, led by orders for construction equipment (6.4 percent jump) and metalworking machinery (4.8 percent increase). Power transmission equipment, including turbines and generators, ticked up by 0.7 percent. But orders for mining, oil field, and gas field machinery plummeted by 30.8 percent, and material-handling equipment orders fell 5.8 percent.
Computer and electronics makers got a 1.8 percent boost in orders in November, with a monthly tally of $22.4 billion. Both defense and nondefense communications equipment orders grew by double-digit percentages. Instrumentation makers saw a 1.2 percent rise in orders. The furniture industry experienced a 5.9 percent orders expansion.
The month of November was less enthusiastic for electrical equipment, appliance, and component manufacturers, which saw a 1.9 percent tumble in orders. Among the industry, only electric lighting equipment makers saw an orders rise (a healthy 4.7 percent).
A 0.4 percent uptick in orders went to makers of fabricated metal products in November, worth $29.1 billion.
The 3D printing and additive manufacturing market is expected to continue to grow at breakneck pace, and 2014 could be a busy year of strategic business moves among machinery makers and service bureaus.
Research firm Freedonia Group, in a report released last month, gave both the industrial and consumer-grade 3D printing markets sharply upward trajectories, the latter fueled by expiring technology patents that will lead to advances and lower prices among more machine brands. The U.S. will remain the biggest 3D printing market by nation, and in developed markets such as the U.S. and Western Europe, there will be growth in metal-based additive technology (as opposed to traditional plastics-based printing), which will be used for direct manufacture of finished parts and goods. Growth markets like China will predominantly employ 3D printing for design, prototyping, and testing functions, echoing the U.S.'s own growth curve some 20 years ago.
Freedonia Group predicts that by 2017, worldwide additive manufacturing demand will reach $5 billion -- a pace of 20 percent per year growth from now till then -- and the U.S. will account for 42 percent of it. Dental products especially -- braces, prostheses, crowns, and bridges, to name some -- will be a rapid market, as will be toys, jewelry, fashion accessories, and other consumer goods. Aerospace applications will see "above-average growth," but Freedonia Group singled out GE's work toward direct manufacture of fuel nozzles via additive production.
While the size of the 2013 market will be tabulated over the next few months by market analysts, the most recent report by Wohlers Associates, a prominent additive manufacturing industry consultant, pegged the 2012 worldwide market at $2.2 billion, up from $1.7 billion in 2011. This represents a year-over-year growth of 28.6 percent, which makes Freedonia Group's 20 percent CAGR forecast a deceleration actually, but which would mark a logical maturation of both the market and technology.
Nevertheless, 2014 might have major developments affecting 3D printing and additive manufacturing users. Investment analyst Canaccord Genuity last week transmitted a research note indicating that consolidation among machinery and technology suppliers will intensify this year after a string of M&As in 2012 and 2013, with majors like Stratasys and Arcam looking to gobble up smaller metal AM companies. Competition among service bureaus -- those companies that operate machines from 3D Systems and Stratasys to produce parts for clients -- will heat up, as well. The service bureau supply chain will be exemplified by diverse design-to-part approaches.
This could be a pivotal year also for metal additive manufacturing processes such as EOS's direct metal laser sintering. This month, Japanese multinational Mitsubishi is expected to introduce a metal 3D printer in the U.S. And the annual Consumer Electronics Show in Las Vegas, which will begin tomorrow, will surely be a showcase of new printers for consumers.
Despite healthy growth in the last few years, U.S. exports are falling short of the pace required to fulfill President Barack Obama's National Export Initiative (NEI) set four years ago. According to an article by Medill News Service, with an export growth decline predicted for 2013, economists say the president's goal of doubling exports to over $3 trillion by the end of 2014 is a long shot.
A recent number of issues -- domestic and abroad -- have hindered the U.S.'s ability to increase exports, namely troubled economic conditions in Europe and Washington gridlock. The Obama administration continues to work on establishing the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership -- two major multilateral free-trade agreements that would open up markets in Europe, Asia, and South America -- but the president is still facing headwinds generated by a divided Congress, including continuing budget battles and the maligned Affordable Care Act, which led to last October's government shutdown. As well, Obama's lack of so-called "fast-track authority" from Congress to finalize the trade pacts puts the deals at risk.
Final 2013 export statistics aren't due until June, but U.S. exporters had a lackluster third-quarter 2013, in which foreign demand for American goods and services slowed by more than half the pace of the second quarter. According to Michael Masserman, executive director of the NEI at the federal International Trade Administration, exports hit an all-time high of $2.2 trillion in 2012 and the initiative has created more than 1.3 million jobs. The ITA continues to put efforts into helping domestic small and midsize enterprises (SMEs) export their products, working in concert with the Export-Import Bank and the U.S. Small Business Administration.
Only 1 percent of the 30 million U.S. companies export, and domestic consumers represent just 5 percent of the world's entire consumer market -- in other words, 95 percent of consumers live outside U.S. borders. SMEs account for approximately one-third of all U.S. exports, and they possess the best potential for accelerating export growth and job creation, say free-trade proponents. However, skeptics argue that loosening barriers for freer trade invites moving jobs away to those foreign markets where labor expenses are lower.
Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, and Max Baucus (D-Mont.), chairman of the Senate Finance Committee, have been expected to lead the drafting and passage of a new bipartisan Trade Promotion Authority (TPA) bill in early 2014 to give the Obama administration the fast-track power it needs to clinch the deals for a new Pacific Rim trade bloc and stronger trade ties with the European Union. TPA, which ended in 2007 under President George W. Bush, limits Congress to an up-or-down vote on any trade accord negotiated by the administration, with no chance of amending or delaying it through filibuster. This encourages trade nations to enter into deals that cannot be subsequently changed by U.S. lawmakers, but the TPA legislation faces strong opposition from both Democrats and Republicans.
In an op-ed published a day after Christmas, Doug Oberhelman, board chairman of the National Association of Manufacturers, and chairman and CEO of Caterpillar Inc., urged for TPA approval. "Updated TPA legislation will provide clear guidance on Congress' requirements for trade agreements. It will also provide our trade negotiating partners with a degree of comfort that the United States is committed to the international trade negotiating process and the trade agreements we negotiate," he wrote. "Creating opportunities for American companies ... through new and expanded free-trade agreements can help to get our economy back on track and keep our nation globally competitive."