Different ways to look at manufacturing data

Based on the data source you look at, there are two distinctly, but, at times, overlapping cases being made for the state of manufacturing here in the United States.

On the positive side, the most recent batch of monthly manufacturing data for the month of November from the Institute for Supply Management points to smooth sailing on the manufacturing front.

As reported in the LM news section this week, based on ISM’s data, the U.S. manufacturing sector is, in a word, rolling. To quickly recap, here are a few of the big ticket takeaways from the ISM’s monthly manufacturing report on business:
-the PMI, its key metric, declined 0.3 percent to 58.7 in November (a PMI of 50 or greater represents growth), with the November PMI 3.1 percent above the 12-month average of 55.6;
-New orders, commonly referred to as the engine that drives manufacturing, headed up 0.2 percent to 66.0, checking in at its highest level since August’s 66.7 and showing growth for the 18th consecutive month;
-Production dropped 0.4 percent to 64.4, coming off of October’s 64.8, which is its highest level since the 65.3 recorded in May 2004 while showing growth for the ninth straight month; and
-employment fell 0.6 percent to 54.9 while showing growth for the 17th straight month

While not all these key data points showed sequential growth, they are in “growth territory,” which is the key thing to remember. It would be like shooting a 67 on the links (I can only dream) or a 69; either way, both outings are pretty darn good. That really is the lens through which this data needs to be interpreted, according to Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee.

What’s more, even during darker economic times, manufacturing has been doing a good job of holding its own, even when the recession was still looming over the economy.

On top of that, other parts of the global economy are seeing a cooling off of sorts, when it comes to their respective manufacturing output at the moment.

A research note from IHS Global Insight U.S. Economist Michael Montgomery pointed out that the ISM’s data is leading similar indices out of Europe, China, Japan, and South Korea “hands down.” But at the same time, he stressed that “demand is not growing fast enough in the U.S. to let it buck the trend for much longer and fight off the eventual cooling influences of soggier exports and firmer imports caused by a strong dollar.”

Montgomery went on to mention that the U.S. manufacturing sector is living on borrowed time and seems destined to cool toward mediocrity within months while most of the world can only aspire to rise from stagnation to mediocre growth, adding that “[t]he U.S. needs something fundamental to keep the ball rolling, and it sorely lacks that spark as 2014 winds down.”

The ISM’s Holcomb does not share that opinion in the very least, it is fair to say.

“One perspective is that somewhere in the word manufacturing has got to be strong,” he pointed out. “The U.S. is the flag bearer for that right now.”

Holcomb noted that the PMI levels in places like Germany and the Eurozone are in the low 50s and are essentially lackluster at the moment. And in the Eurozone, he said, that is likely to remain intact for a while as the nations it is comprised of will fight through their respective economic doldrums.

China, on the other hand, he said, has more cohesive government attention on one large economy and will do the things needed to keep moving forward.  And aside from the current 50.3 PMI reading in China, Holcomb said things are not as bad there as in other parts of the world, considering that its GDP is in the 7.5 percent range, which is a healthy number to be sure.

Will the U.S. continue to keep its manufacturing train rolling? Short of a hard prediction, Holcomb said it is fair to say that the U.S. will finish this year strong based on metrics like backlog of orders and new orders, which continue to translate into ongoing growth.