OUR THOUGHTS ON:

Key Manufacturing Industry Statistics for May 2012

Manufacturing

By Evan Ogrodnik

Monthly, the Institute for Supply Management (ISM) publishes its Report on Business, which provides key economic data on the manufacturing industry. The data used to compile the report is based on survey respondents from many different sectors within the industry who are asked to rate their organization’s performance based on a comparison with the previous month.

The Purchasing Managers Index (PMI) is the composite index for the manufacturing industry compiled by the ISM, and is based on five sub-categories: new orders, production, employment, supplier deliveries and inventories. The PMI index is utilized to help analyze the state of the economy, and predict future growth or contraction.

The ISM considers a PMI index over 50.0 to indicate that the manufacturing environment is expanding. The ISM uses benchmark readings for each of the sub-categories to measure the current month’s index as follows:

New orders – Index above 52.3 is generally consistent with an increase in the Census Bureau’s series on manufacturing orders.
Production – Index above 51.2 is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
Employment – Index above 50.5 is generally consistent with an increase in the Bureau of Labor Statistics data.
Supplier Deliveries – Index above 50 generally indicates slower deliveries.
Inventories – Index above 42.8 is generally consistent with expansion in the Bureau of Economic Analysis’ figures on overall manufacturing inventories.

Rolling three-month review:

     

MAY

APRIL

MARCH

 

BENCHMARK

               

PMI

   

53.5

54.8

53.4

 

> 50.0

New Orders

 

60.1

58.2

54.5

 

> 52.3

Production

 

55.6

61.0

58.3

 

> 51.2

Employment

 

56.9

57.3

56.1

 

> 50.5

Supplier Deliveries

 

48.7

49.2

48.0

 

< 50

Inventories

 

46.0

48.5

50.0

 

> 42.8



While the PMI index is down from April, it is very consistent with March. As you can see, the May indices are in excess (or below in the case of deliveries) of the benchmark data, which is positive.

The Federal Reserve Bank, in its June 6 edition of the Beige Book, indicated that overall economic activity expanded at a moderate pace during the period from early April to late May, with the manufacturing industry continuing to expand in most of the 12 Federal Reserve districts, particularly within the auto and steel sectors.

The Fourth District (Cleveland), which Western Pennsylvania and Columbus, Ohio are included, reports that manufacturers maintained stable production during this same period, and hiring continued at a modest pace. Manufacturers are expecting increased activity during the remainder of 2012, particularly due to expansions in the construction and energy industries. Producers have indicated they are running close to normal rates, and inventory levels were consistent with demand.

It is noted that shipping volume by steel producers and service centers was stable, but that volume is expected to drop as is typical during the summer. There remains uncertainty as to how much volume will pick up in the fourth quarter.

Capital spending remains on track with budgeted amounts, with some contacts reporting increased capex spending plans.

While substantial growth indicators are not present at this time, the manufacturing industry as a whole remains strong.

For further information on the ISM Report on Business, please use the following link: http://www.ism.ws/ISMReport/?navItemNumber=4892

For further information from the Federal Reserve Bank, please use the following link: http://www.federalreserve.gov/monetarypolicy/beigebook/default.htm

Please contact a member of the Schneider Downs Manufacturing Group with any questions you may have.

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