First-day jitters: Supply managers’ report points to manufacturing slowdown
By Manufacturing Business Technology Staff -- Manufacturing Business Technology, 1/3/2008 8:38:00 AM
Manufacturing executives may be a bit nervous at the start of the year after seeing the latest report from the Institute of Supply Management (ISM).
The ISM report for December 2007, released Wednesday, indicates that the manufacturing sector is starting to contract after 10 consecutive months of growth. This bleak forecast is based on the institute’s primary measure of manufacturing activity—the Purchasing Managers Index—which registered 47.7 percent in December, a 3.1- percent decrease from November’s reading of 50.8 percent.
A reading above 50 indicates that the manufacturing sector is generally expanding; below 50 percent indicates the sector is contracting.
Some industry analysts find the December reading especially troubling because it is the lowest since April 2003.
Norbert J. Ore., a Georgia Pacific executive who serves as ISM chairman, concedes the numbers could be better, but he also sees reasons for optimism.
"The manufacturing sector failed to grow in December ending 10 consecutive months of growth,” Ore said in a statement accompanying the release of the report. “The recent trend has been toward slower growth. However, December was apparently a very tough month as new orders, production, and employment were all below the break-even mark of 50 percent. Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better.”
Ore then went on to list seven industries that reported growth in December:
• Apparel, leather, and related products;
• Petroleum and coal products;
• Food, beverage and tobacco products;
• Computer and electronic products;
• Machinery;
• Primary metals; and
• Miscellaneous manufacturing.
Ore also pointed out that separate regional indexes measuring manufacturing activity in and around New York, Philadelphia, and Chicago all remained above 50 for month of December. Analysts looking for bright spots point out that a Purchasing Managers Index above 41.9 generally indicates the overall economy is still in expansion mode and that could ultimately prevent the manufacturing sector’s contraction from being long-lived.
Some analysts have suggested that U.S. dollars current weak position relative to other currencies might also soften the blow for manufacturers. David Rosenberg, North American economist for Merrill Lynch, told the Wall Street Journal that the dollars decline has “supercharged the competitiveness” of U.S. manufacturers by prompting them to export more goods. It also has boosted the investment of foreign manufacturers in U.S. markets by more than 11 percent in the past year.
The complete text of the ISM report, and comments from manufacturers in various industries, can be found at the organization's Web site.
