In January, I posted a short piece on what I thought this year may hold for manufacturing in the United States. I identified some things that could affect the economy generally and manufacturing in particular. While I won’t engage in second guessing my thoughts then, it is worth looking at what the indicators are telling us. In looking at the various indicators of manufacturing activity drawn from private surveys and government sources, it is hard to say where manufacturing is headed. They are seemingly pointing in different directions. It is a muddled picture. It is hard to suggest a trend using just a handful of data points but these indicators will bear watching in the future.
For instance, the most recent report on industrial production and capacity utilization released by the Federal Reserve Board suggests that manufacturing production and capacity utilization was up in June and July and above expectations. Bureau of Labor Statistics (BLS) data on manufacturing employment suggests that manufacturers have added 130,000 jobs since the beginning of the year and after a few months of middling job growth early this summer; manufacturers added 25,000 jobs in July. In a few days we will get our next reading on employment from the Bureau of Labor Statistics. Looking at another measure, BLS data shows that productivity (output per hour) in manufacturing is up in the 2nd quarter of this year, but grew at a slower rate compared to the 1st quarter of this year. In addition, average hours and overtime hours in manufacturing were largely unchanged over the last few months.
On the other hand, several of the surveys done by various Federal Reserve Banks across the country point toward a potential slowdown in manufacturing activity. In particular, the most recent surveys of manufacturing activity from the New York and Philadelphia Federal Reserve Banks point to continued softening in manufacturing activity. In addition, growth in exports seems to be slowing over the last few months as a result of the economic slowdowns in much of Europe and China. In addition, the Institute for Supply Management’s (ISM) manufacturing index stood at 49.8% in July, which was up slightly from 49.7% in June but below the critical reading of 50. A reading below 50 indicates contraction. The ISM employment index was at 52.0%, down from 56.6% from the month earlier. The ISM new orders index stood at 48%, up slightly from 47.8% in June and which seems be in line with data from Census Bureau on new orders We will get a reading on the ISM for August in a few days
Hopefully, as more data comes out, we will begin to see a definitive picture of where manufacturing is headed. But, it is hard to tell. Of course, I wonder how much of these conflicting signals represent measurement issues that are based on historical averages and have not been adjusted to account for a new reality. For example, seasonal adjustment factors are based on historical data that may no longer apply. In particular, employment in the auto industry has historically slowed over the summer as lines were retooled but now that is less prevalent. As we saw last year, manufacturing hit a temporary bump in the road over the summer but then bounced back into positive territory.
What do you think will happen?