December ISM Manufacturing Report- Mixed Message

January 2, 2013

The December ISM Manufacturing Report is out, and the headline story is good news.

But the full report is a bit of a mixed bag for our industry.

Manufacturing is back in expansion mode as the Purchasing Manager’s Index, “‘The PMI™,’ registered 50.7 percent, an increase of 1.2 percentage points from November’s reading of 49.5 percent, indicating expansion in manufacturing for only the third time in the last seven months. This month’s PMI™ reading moved manufacturing off its low point for 2012 in November.” – ISM Report Dec 2012

ISMDec2012

A closer reading however notes that “The nine industries reporting contraction in December — listed in order — are: Nonmetallic Mineral Products; Chemical Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; Transportation Equipment; Machinery; Electrical Equipment, Appliances & Components; and Apparel, Leather & Allied Products.”ISM Report Dec 2012

Precision machining is an industry of Fabricated Metal Products.  Four of our most important market segments were also in decline in December:  Transportation Equipment; Machinery; Electrical Equipment, Appliances & Components. The market we see is not as rosy as the headline.

In addition, the New Orders component of the survey, at 50.3, went unchanged.  This suggests that new orders, the source of our business’s future production, was virtually unchanged in December. The backlog of orders component,  at 48.5,indicates a small contraction of the orders book.

Graph courtesy of Calculated Risk Blog


September PMI Report- Fragile Economy and Soft Order Book

November 2, 2012

The PMI™ registered 51.7 percent, an increase of 0.2 percentage point from September’s reading of 51.5 percent, indicating growth in manufacturing at a slightly faster rate.”

Underperforming at best. We have the tools…

“The New Orders Index registered 54.2 percent, an increase of 1.9 percentage points from September, indicating growth in new orders for the second consecutive month.”

Why we’re not exactly ecstatic over October’s 1.9% increase in new orders- Look at  our shipments for the month September…

“The Production Index registered 52.4 percent, an increase of 2.9 percentage points, indicating growth in production following two months of contraction. The Employment Index registered 52.1 percent, a decrease of 2.6 percentage points, and the Prices Index registered 55 percent, reflecting a decrease of 3 percentage points.”

“Comments from the panel this month reflect continued concern over a fragile global economy and soft orders across several manufacturing sectors.” (emphasis mine)

“Order book is really soft,” according to my industry contacts. I won’t say who said “As soft as a pair of fuzzy slippers.”

According to the ISM release, the following manufacturing sectors- listed in order reported declines in October: Primary Metals; Wood Products; Machinery; Fabricated Metal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Nonmetallic Mineral Products.

The precision machined products industry is a sub sector of Fabricated Metals, and we directly serve the Machinery, Transportation Equipment, Electrical Equipment, Appliances and Components, Computer and Electronic Products Industries, mentioned as contracting in the ISM report.

Many of the United States’ export markets are currently contracting, with the Eurozone being especially hard hit by declining new orders across the continent. The BEA and US Census reported that goods exports decreased from $130.7 billion to $128.5 billion; goods imports declined as well from $188.5 billion to $187.8 billion. The fragile global economy is slowing trade.

Precison machined products are used in a wide variety of applications and technologies, and contraction in those markets can’t help but be felt by our industry.

You can see the full ISM release here

Calculated Risk Chart

Soft Slippers