Manufacturing Activity Grows For 20th Straight Month

According to the March 2011 Manufacturing ISM Report On Business, economic activity in the manufacturing sector expanded for the 20th consecutive month, and the overall economy grew for the 22nd straight month.

Norbert Ore, CPSM, C.P.M.

The PMI (Purchasing Managers’ Index), an indicator of the economic health in the manufacturing sector, registered at 61.2 percent, a decrease of 0.2 percentage point when compared with February’s reading of 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Norbert Ore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee, recently spoke with Industrial Distribution about the data in the report, what the data means to those in the manufacturing industry, and whether or not manufacturers can feel confident about the future health of the sector, as well as the economy as a whole.

ID: What are some of your overall thoughts on the most recent report?

Ore: It’s another good month for the manufacturing sector. We are averaging above 60 (percent PMI) for the first quarter of the year. The good news is that the performance is so strong that it should carry a lot of momentum forward. I don’t think we can stay at this level of growth, but certainly this is a solid performance.
Though the numbers were similar to last month, new orders came down and production went up. That’s to be expected, but we did see a little softening in export orders, compared to what they were last month. They were at an extraordinary level in February.

Overall, it was a very positive report. New orders are growing significantly faster than inventories, which we like to see. Inventories seem to be at levels where people are happy. Prices are being driven higher by rising oil prices, the weaker dollar, and by global demand. Manufacturers are going to be challenged as to whether or not they can recover that lost ground on pricing.

ID: Should we expect to see further ramifications of those higher prices over the course of the next few months?

Ore:  I think it’s already there. I don’t think it’s a delay issue. There’s already a good bit of price pressure.

ID: Obviously, there are a lot of encouraging signs here. Are there any reasons why the manufacturing industry shouldn’t think the economy will continue to grow, at least in the short term?

Ore: We always face the possibility of things occurring that we can’t predict. The situation in Japan is certainly one of those things. That’s the other thing, in addition to prices. What’s the impact of Japan? Basically, they are still trying to assess the situation. It’s not only about the supplier in Japan, but it’s about that supplier’s supplier.

ID: When you looked at the report, was there anything that jumped out at you as somewhat of a surprise?

Ore: With all but a couple of very minor exceptions, it looked a great deal like February and January. All three were great months for manufacturing.

ID: Recently, there’s been some good news with regard to employment. It’s not at the level it was three to five years ago, but unemployment is as low as it has been in the past two years. Have you seen some encouraging trends that reflect that decrease in the jobless rate?

Ore: Manufacturing employment has improved significantly. The bad news is we have a long way to go to make up for the two million jobs that have been lost.