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A tale of contradictions in manufacturing

A tale of contradictions in manufacturing

Manufacturing remains one of America's strongest economic pillars. While the country had been importing a lot more than it had been exporting, that changed with the Great Recession, as manufacturing slowly moved back to local shores. The comeback of the sector has been one of the unsung moments of the recovery. Still, even with technological advancements such as mobile warehouse management and timekeeping software, there are reasons to remain cautious about this return. As with the rest of the economy, manufacturers are still uncertain about the future. This can be seen in two recent manufacturing reports that tell completely different stories. Such contradictions should mean that factory managers should stay alert for any sudden changes in the outlook.

Outputs down and out
In the private sector, consulting firm Markit's Flash Purchasing Managers' Index – a survey which determines manufacturing outlook based on a number of different factors – showed a decrease in December. While still above the important benchmark of 50 and series average of 52.1, it was a steep decline from 54.8 in November to 53.7 this month. It's the lowest number since the beginning of the year.

What has influenced the decline is a general slowdown in several key indicators, though growth remains in place for most companies. Business conditions only improved tepidly, which resulted in weaker output growth. New orders also eased for December after several months of strong increases. That has played a role in new hires, which also slowed despite continuing an 18-month streak of more hires than losses. The one improvement in comparison to November was export sales, which rebounded after hitting a low point in the prior month. Analysts from Markit and Reuters suggested that this month represents a cool down after multiple months of significant advances. However, it could also mean the beginning of a downturn.

Big gains
On the other hand, the Federal Reserve offers a different take on the economic situation with its numbers on manufacturing output across the country. The most recent report showed that output increased 1.1 percent in November, the highest gain since February. In addition, October's numbers were revised upward to 0.4 percent from 0.2 percent. This beat economists' expectations significantly. Overall industrial production received a 1.3 percent boost as a consequence, the highest in more than four years. Helping matters was manufacturing capacity, which got a boost to 78.4 percent.

These measures will have a greater impact on the economy over the next year, when the Fed will consider adjusting interest rates for the first time since the Great Recession. With these two reports running against each other in certain ways, the question becomes whether there is a consistent pattern developing within manufacturing. Other factors remain an issue on the periphery. For example, while export sales have increased, there are still conflicts and general malaise around the world that keep markets from buying American products. In addition, factories are still dealing with aging equipment and catering to an increasing workforce. With proper management and effective use of technology, companies can stand to do well in these circumstances.

Posted in: Industrial Manufacturing

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