Manufacturers

Manufacturing sputters while construction continues to grow

By Jack Keough

Just a few weeks ago, it appeared that the battered manufacturing sector was making a comeback. But the latest report by the Institute of Supply Management Index released last week shows that manufacturing is sputtering which is not good news for electrical manufacturers and distributors.

ISM’s monthly reading on the U.S. manufacturing sector came in at 49.5 in November, the lowest level since July 2009. The index is compiled from a survey of manufacturing supply managers, and any number below 50 indicates the sector is contracting. Analysts had expected the manufacturing sector to expand.

The latest unemployment report, released last Friday, confirms the drop off as manufacturing shed 7,000 jobs. Total manufacturing employment hasn’t budged since May, which is actually a little better than might have been expected given the dramatic slowdown in factory sector output growth, noted Cliff Waldman, senior economist with the Manufacturers Alliance for Productivity and Employment (MAPI).

Of the 18 manufacturing industries, only six reported growth. Electrical equipment was one of the six. But some of those electrical manufacturers are not that optimistic. One of the electrical manufacturers quoted in the report said he is seeing a “slowdown in demand across markets.”

Respondents said fiscal cliff fears are weighing on business investment and hitting manufacturers. New orders for goods had grown in October, but then were essentially flat at 50.3 in November.

“The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed,” said a manufacturer of fabricated metal products in the report. “If the program that is put in place is more taxes and big spending cuts — which will push us toward recession — forget it.”

Bradley Holcomb, chairman of the ISM survey, said in an interview with Bloomberg.com that more manufacturers said concerns about the fiscal cliff, rather than Superstorm Sandy, were behind the slowdown.

“We’re picking up scarcely little about the storm, and it wasn’t talked about that much, certainly relative to the fiscal cliff,” Holcomb said. “Their concern is about taxes and what that will mean for business overall. For the lack of insight, they’re just slowing down and keeping a foot on the brake. That shows up in employment, shows up in inventories.”

There was, however, some good economic news last week: A separate government report showed that U.S. construction spending rose in October by the most in five months. The report noted that spending on homes has increased while the business and government projects have stalled.

Construction spending climbed 1.4% to an annual rate of $872.1 billion, the highest level in more than three years, the Commerce Department said. That is higher than what many analysts had expected. During the first ten months of the year, construction spending amounted to $707.4 billion, a 9.3% increase for the same period in 2011.

Home building is finally adding to the country’s economic growth for the first time in seven years.

Residential construction was at a seasonally adjusted annual rate of $294.2 billion in October, 3.0% above the revised September estimate of $285.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $297.9 billion in October, 0.3% above the revised September estimate of $297.0 billion.

Manufacturing construction fell 2.5% in October, but grew 3.6% year-over-year. Commercial construction rose 1.2% and 9.5%, respectively. Meanwhile, highway and street construction spending fell 2.4% and 5.0%, while educational construction rose 0.9% for the month but fell 2.8% over 12 months. Experts predict October’s positive growth has the potential to carry over into the upcoming months.

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 john.keough@comcast.net or keoughbiz@gmail.com

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