By Jack Keough
series of reports issued within the past two weeks indicates that the U.S. economy
is not growing the way many economists had expected. This is seemingly not good
news for manufacturers, including those that produce electrical equipment. However,
other prominent economists say those numbers can be misleading and remain optimistic
that a strong economic recovery for manufacturing is about to take place.
take a look at some of these reports.
disappointing jobs report for August, issued just last Friday by the U.S. Bureau
of Labor Statistics, showed that non-farm payrolls only increased by 96,000. Economists
had expected at least 125,000 jobs to be created. The manufacturing sector suffered
a 15,000 job loss while economists had predicted an increase of 10,000.
was the first time manufacturing employment has dropped in more than a year. Of
particular concern was that the labor participation rate, those adults who
actually have jobs, was 63.5%, the lowest rate in more than 30 years. That
means one-third of adults in the U.S. do not have jobs for one reason or
another. And adding to the problems, the Labor Department revised its job
numbers downward by 41,000 for June and July,
wasn’t the only bad news. Another report produced by the Institute of Supply
Management showed that the manufacturing index fell to
49.6% in August, lower than the 49.8% in July and the worst reading since July
2009. It was the third consecutive month the economic gauge was below 50, the
first time that has happened since 2009. Among the various sectors that showed
contraction was electrical equipment.
However, on the
plus side, new orders for the electrical equipment sector increased, according
to ISM’s New Orders Index.
Readings below 50%
in the ISM indicate that more firms are contracting than growing. The ISM
obtains the information from purchasing managers who are asked if business is
worse or better than the previous month.
had expected an overall reading of more than 50. Faced with soft consumer and
foreign demand, manufacturing production has slowed notably in the past six
months and indicates the factory slowdown may be continuing.
“It is a sobering
picture for manufacturing,” said Bradley Holcomb, chairman of the ISM survey
Not all economists
paint a bleak picture for the manufacturing sector.
Alan Beaulieu, a
principal with the Institute for Trends Research, a company that has an
excellent forecasting rate over the years, said people should not be fooled by
the ISM numbers.
Writing in his
blog (www.itreconomics.com) ,
Beaulieu wrote: “More important is the reality that
manufacturing in the US has not declined for three months in a row. The Total Manufacturing Production Index,
published by the Federal Reserve Board, moved higher at a steeper-than-average
pace in both June and July. The August figure is not available yet. The
difference between these facts and the headlines is that the Fed deals with
actual results while the ISM is based on a survey. Surveys are often useful,
but in this case, it seems to be misrepresenting reality.
“The US manufacturing sector through July has risen 20.3%
off the June 2009 low,” he wrote. “That makes this rising trend steeper than
both the 1991-2000 and the 2001-2007 events (at 15.2% and 9.6%, respectively).
Internal trend characteristics and external leading indicators portend more rises
in the manufacturing sector. Don’t let the headlines scare you into a recession.”
released last week showed a downturn in manufacturing in Asia and the euro
in a separate report last week, The United States economy grew slightly faster
than initially reported in the second quarter, but was still too weak to signal
any major improvement.
domestic product, the broadest measure of the nation’s economic health, grew at
an annual rate of 1.7% from April to June, according to the Commerce Department,
slightly higher than the 1.5% rate originally reported, but still in line with
one economist offered his analysis of the recent durable goods orders for July
and concluded there were problems behind those numbers, despite the fact that
orders had increased more than 4%.
U.S. Census Bureau reported that durable goods orders for July increased 4.2
percent, after rising 1.6 percent in June,” said Dr. Daniel Meckstroth, vice
president and chief economist for the Manufacturers Alliance for Productivity
and Innovation (MAPI). “On the surface this looks like very positive results;
however, there were major declines in the orders for machinery, communications
equipment, and electrical equipment and appliances in June and July;
report shows that the gains over the last two months came from very large
orders for civilian aircraft and parts. These are very long lead-time orders
that are positions in a multiyear queue and do not reflect future production
activity over the next three to six months,” he said. “A more relevant
indicator of the nearer term is nondefense capital goods orders excluding
aircraft, which declined 3.4 percent in July and fell 2.7 percent in June.
Order activity for these products is an important indicator of business
confidence in the strength and direction of the economy.
bright side of the report was that motor vehicle orders surged 12.8 percent in
July,” Meckstroth added. “Consumers and firms need to change aging autos and
trucks, for which replacements were postponed during the long recession and
sluggish recovery and expansion. In addition, aerospace production continues to
ramp up, which benefits many manufacturing industries directly and indirectly.
Nevertheless, the July durable goods orders report is worrisome.”
Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at firstname.lastname@example.org or email@example.comTagged with tED