Manufacturing output finishes 2013 strong, reports ISM

Manufacturing output finished 2013 on a strong note, showing positive growth for the seventh straight month, the Institute of Supply Management (ISM) said this week.

The PMI, the index used by the ISM to measure manufacturing activity, was down slightly in December compared to November, falling 0.3 percent to 57.0. November’s 57.3 was the PMI’s high water mark for 2013, with December in good company as the year’s runner-up. December’s PMI is 3.1 percent of the 12-month average of 53.9 and is once again over the 50 mark—which is the benchmark of strong economic activity—in 12 of the last 13 months, coupled with the overall economy growing now for 55 straight months, according to the ISM.

Including the PMI, two of the report’s four key metrics were positive in December. New Orders, which are commonly referred to as the engine that drives manufacturing, continued its strong run, up 0.6 percent to 64.2, which is its highest level since hitting 65.1 percent in April 2010 and the high for 2013, too. New Orders growth is in lockstep with PMI as both have grown for seven straight months.

Production fell 0.6 percent to 62.2 but remained in growth territory for the seventh straight month, and Employment climbed 0.4 percent to 56.9, marking its highest level since June 2011’s 59.0.

ISM members surveyed in the report were largely positive in their assessments of current business conditions in their respective sectors.

A fabricated metal products respondent explained that his company has its “largest backlog ever,” with “most orders waiting on customer approvals.” A paper products respondent said orders and price continue to be strong, and a computer and electronic products respondent cited “good overall business conditions national and internationally.”

Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, said in an interview that December continued the strong manufacturing momentum set up throughout the whole second half of the year.

“The average PMI for the second half of the year was 56.3 versus 51.5 for the first half,” he noted. “Definitely something happened mid-stream and we held on to it.”

The ongoing strong performance of New Orders, according to Holcomb, can be directly tied into Employment. The reason is that only happens if ISM member respondents for the report anticipate a continuation in New Orders growth, he said, adding that the strong 64.2 number in New Orders could portend good things to stay in place.

Prices were up 1.0 percent in December to 53.5, which was consistent with previous projections from Holcomb that they would not see meaningful gains or declines as manufacturers prepare to face price increases early this year.

Inventories dropped 3.5 percent to 47.0 from, November to December, which Holcomb described as a consequence of strong production, coupled with Supplier Deliveries up 1.5 percent in December to 54.7. At 47.0, Holcomb said raw materials inventories are a little leaner than manufacturers would probably like them to be at this point, because they anticipate the continuation of solid New Orders.

“That means suppliers are having a hard time keeping up with fulfilling stock orders for raw materials,” he said. “That is a ‘good news’ number, too, as it means things are tight and suppliers are running to keep up and they are not quite managing. That is why inventories have fallen, but it is still in well-managed territory.”

Backlog of Orders fell 2.5 percent to 51.5. Even with this decline, Holcomb made it clear Orders are in fact still growing. And coupled with New Orders growth, he said this bodes well for future Production and Employment gains.

Given the ongoing spate of steady manufacturing data, as well as solid growth in other sectors like housing and automotive, among others, Holcomb said that the economy as a whole may finally be escaping the shadows of the Great Recession.

“Things could be turning the corner, if you look broadly,” he said. “Looking at Europe, the Eurozone PMI is up. Germany itself is up, and China is kind of hanging in there, which is hard to figure out what that means. It seems like maybe we have finally found some stability and momentum that will carry us nicely into and through 2014.”