More Evidence that Manufacturing “Cooled” in Recent Months
Over the past few weeks, a number of indicators have come out suggesting that manufacturers have struggled with rising raw material and energy prices and supply chain disruptions due to the Japanese earthquake and tsunami. As a preview perhaps for tomorrow’s Purchasing Managers Index (PMI) figures from the Institute for Supply Management (ISM), there were three regional studies out today which reflect the “cooling” in manufacturing in April and May.
First, the Chicago Business Barometer from ISM-Chicago dropped from 67.6 to 56.6 in May. Numbers above 50 indicate growth, so business activity is still positive. Nonetheless, it represents a sharp drop in both production and new orders, and inventories grew. Overall employment growth dipped somewhat from 63.7 in April to 60.8, but that still represents steady job growth in manufacturing. The fall in the prices paid index from 81.8 to 78.6 reflects lower energy prices, but it is still high enough to warrant continued concern about pricing pressures overall.
A second Chicago study out today has similar findings. The Midwest Manufacturing Index from the Chicago Federal Reserve Bank also observes decreased output from 84.4 in March to 83.6 in April, with the regional auto sector’s production falling 5 percent mostly due to supply issues. Production in steel also declined, but resource and machinery output rose. Each of these sectors was up year-over-year, however, with regional manufacturing production up 8.6 percent from the previous year.
The last analysis of note today is the Texas Manufacturing Outlook Survey from the Dallas Federal Reserve Bank. It presents relatively mixed results. While the index of general business conditions moved into negative territory (from 10.5 in April to -7.4 in May), manufacturing production actually rose in the month, with its index going from 8.1 to 12.7. The production index has now been positive for 19 consecutive months, but the growth rate of new and unfilled orders fell, which is a concern. The good news is that employment growth and expectations of future production remain positive. However, respondents were less optimistic about the six months than in previous surveys.
Chad Moutray is chief economist, National Assocation of Manufacturers.