Author Archives: Craig Rovere

The Stupid Trump Tariffs

By Tim Grady, Manufacturing Talk Radio

Trade War Ahead

By Tim Grady, Manufacturing Talk Radio

Before you read any further, let me define “stupid” as opposed to ‘ignorant’.  Ignorant, in my definition, is being unaware of things such as facts or the obvious.  Stupid is being well aware of the facts or the obvious and choosing to ignore them.  In my view, the Trump Tariffs are stupid for a myriad of reasons:

  • Tariffs have never worked to benefit any country. They have been used since George Washington first spoke as a U.S. president in favor of protected industries
  • Tariffs have usually made things worse overall for the manufacturing industry as a whole with even large producers like automotive experiencing the adverse impact of, in this case, the cost of steel and aluminum
  • Tariffs benefit the few, in this case – Big Steel, at the expense of the many, like any company currently using steel, aluminum or component parts from China, Canada, Mexico, Russia, or other countries that have agreed to quotas (which will make the supply chain even more lean and uncompetitive)
  • Tariffs cause prices to rise and demand to fall – the simple law of supply and demand still applies in a free market economy, but the vicissitudes of the cycle become amplified by cost increases and supply shortages
  • Tariffs are a partial stimulant to inflation, especially in a booming economy where inflation always rears its ugly head in the latter stages of an economic cycle, which the U.S. is now approaching
  • Tariffs do not support a free market economy; they create a protectionist economy manipulated by the central government that flies in the face of a free market
  • Tariffs, as they are currently being applied, are not for ‘national security’ in general, except for steel and aluminum in particular – maybe; all the other parts and products being whacked with tariffs have nothing to do with ‘national security’ but rather a ridiculous and unnecessary stand-off
  • Tariffs will make rebuilding America’s infrastructure much more expensive for the American taxpayer; there are already other Acts, such as the Buy American Act of 1933, that can be used to ensure that infrastructure steel be American-made
  • Tariffs on steel and aluminum resulted in Big Steel restarting old blast furnace plants, not investing in new mini-mill production because new plants will take years to build and go into production long after the tariffs have been rescinded and international competition returns to the market
  • Tariffs cost jobs in the country that imposes them – the USA is now seeing the bleeding edge of tariffs cutting into U.S. workers with the Tax Foundation estimating that nearly 50,000 jobs have already been lost or are scheduled for layoffs and up to 250,000 or more will be lost by the end of 2018 and early 2019, while the balance of 2019 may cause related job loses to rise to over 400,000
  • Tariffs are not pin-point punishment for China stealing the intellectual property of U.S. companies that chose to produce in China
  • Tariffs will not create or restore a trade balance between our trading partners – the USA has the largest economy in the world and the finest quality goods in high demand overseas; the reciprocal simply isn’t the case for any of our trading partners so a 1:1 parity on imports and exports is just not achievable
  • Tariffs may get a country like China to open more of their country to U.S. products, but you generally don’t build a relationship with a customer by poking them in the eye to get their attention while simultaneously shooting your own foot off and screaming, “There, take that!”

It is almost sickening to go on and on about a ‘trade strategy’ that was doomed from the outset and will likely sway both the mid-term elections this November and the chances for Trump’s re-election in November of 2020, by which time this economic cycle will have played out and the country will likely be in a recession.

And it is not just manufacturing that is taking the hit. Non-manufacturing, which the ISM reports as 78% of our economy, is beginning to feel the pain. People being interviewed on Manufacturing Talk Radio are saying that their company cannot get orders from potential manufacturing customers in some cases because manufacturing is growing uncertain about the short-term and long-term impacts of the Trump Tariffs. That means fewer orders, less need for people to fulfill orders, and looming layoffs in non-manufacturing, as well.

Thus, the conclusion here is that the Trump Tariffs are stupid as a trade strategy, but the Administration will somehow frame them as a ‘big win’ when they lose enough jobs and enough face which forces them to rescind the tariffs.  Now, if someone can come up with a rosey list of reasons why the Trump Tariffs are good for the U.S. – with real facts and not just bloviating, please enlighten me because from my point of view on manufacturing with its inevitable ripple effects into non-manufacturing, this will not end well for making America great again.

The views expressed in this article are those of the writer, and not endorsed by Manufacturing Talk Radio, the Metals & Manufacturing Outlookezine, or MBC.

From Price Hikes to Price Spikes: U.S. Manufacturers and Consumers Will Pay Dearly for Unnecessary Tariffs

Tariffs

By Tim Grady, Executive Producer, Manufacturing Talk Radio

On the first of each month, Manufacturing Talk Radio show hosts Lew Weiss and Tim Grady interview the Institute for Supply Management Committee Chairs for the Manufacturing Report on Business®, Tim Fiore, and the Non-Manufacturing Report on Business®, Anthony Nieves. Both reports, which can be found at the radio website, www.mfgtalkradio.com, show a 24-month trend of price hikes across all sectors, although much of the increases in 2016 and into 2017 were not passed on by manufacturers. While passing on price increases began to change in the latter half of 2017, nowhere has it become more aggressive than in the steel industry, especially with the advent of the tariffs.

U.S. steel producers were increasing prices steadily in 2017, with as much as a 20% increase by some producers during the year. Even as they complained that foreign steel suppliers were dumping steel on the U.S. market at prices below U.S. steel producers manufacturing costs, domestic suppliers raised prices and nudged the Trump administration to impose tariffs on overseas suppliers, particularly on China, South Korea, Russia, Turkey and Vietnam.

One would think that the tariffs should level the playing field, bringing foreign steel prices closer to parity with U.S. domestic steel producers, but something else has happened. U.S. steel prices have spiked in 2018. Since January 1, prices on some commonly used steel forms, such as sheet and plate, have jumped 22%. For example, hot-rolled coiled steel prices are at $770 a ton, up 32% since October, with spot prices above $800 a ton.

Steel Prices

Please note that China is 10th in steel exports to the U.S., although much of the tariff justification has been based on China

More domestic price spikes are in the works, with some of the major producers quietly raising prices as the tariffs increase the cost of some foreign producers. Canada and Mexico have asked for exemptions, and if a favorable NAFTA agreement is hammered out, they may get the exemption. Japan has asked for an exemption, as well. But the target of the tariffs appears to be producers in Asia.

China is one name that is bandied around although steel imports from China dropped substantially in 2017 from previous years and now account for less than 3% of steel imports. And while South Korea, Turkey, Russia and Vietnam are countries in the news, Brazil is not, even though the U.S. imports 13.2% of its steel from Brazil.
But the larger question revolves around the recent price increases from domestic U.S. producers like Nucor, Timken, ArcelorMittal (the world’s leading integrated steel and mining company with substantial production facilities in the U.S.), and AK Steel, which will likely be followed by the second-tier producers. If steel dumping was so crippling to them, why are they now able to raise prices in excess of 25%, adding both 2017 and 2018 price increases together – so far? The answer lies in the past, and the future.

Back to the Future
“Those who cannot remember the past are condemned to repeat it.” – George Santayana, philosopher, essayist, poet and novelist, 1863 – 1952.
When President Bush put 30% tariffs on steel sheet and 15% on steel bars and rods, domestic manufacturers cancelled foreign steel orders and rushed to buy domestic steel. This caused a demand-side problem for U.S. producers, who immediately fell behind in production and within months were rationing deliveries. Prices spiked by 60% within 4 months simply because U.S. producers could get it. U.S. production capacity utilization jumped from 70% to nearly 100%. Cost increases were passed on to consumers and businesses, who had to balance their own cash inflows/outflows equation. Consumers cut back on spending, and manufacturers ended up slashing an estimated 200,000 jobs resulting in over $2 billion in lost wages to be able to absorb the steel price spikes. And GDP grew at a tepid 1.4%, an insufficient number for U.S. manufacturers to invest capital in plants or new equipment.

So, what is the likely outcome of these price hikes? Like Yogi Berra, famed catcher for the New York Yankees baseball club said, “It’s déjà vu all over again.” It appears likely that the tariffs, regardless of their intended merit, will cause prices to rise far more rapidly in the current economic cycle, may trigger inflation that will cause the Fed to more aggressively raise rates, tamp out borrowing for capital investment, cause job losses, and may not translate into the rebuilding of the U.S. steel industry for the national defense as Trump intends. In fact, today, as U.S. producers look forward to increased cash flow and profitability, some are firing up old blast furnaces rather than breaking ground for new modern mills. Tariffs may well choke off the current economic cycle much earlier than 2020 where it was expected to play itself out. And, yes, the tariffs might be the lynch pin that costs Trump his reelection if the economy is in the tank in 2019 – when people vote!

Politics aside, manufacturers will quickly see rising costs for steel and aluminum, and much higher than they may have thought. With 20% from 2017 and more than 20% so far this year on some steel, they will have no choice but to buy at higher prices and pass that cost on in the price of their own products. It didn’t have to be this bad, but it is now unavoidable. Steel and aluminum prices in 2018 may unsettle an economic cycle with unpredictable spikes in steel and aluminum prices that may not abate for a few years, and manufacturers will have to deal with those cost increases for the foreseeable future.

And what makes it all unnecessary is that U.S. steel producers should be investing in modern mills with new material handling technology, competing with the rest of the world on the global playing field while still protecting our national defense interests. Tariffs are not, and never have been, the solution.

Metals & Manufacturing Outlook December 2016


 

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IN THIS ISSUE:

MANUFACTURING OUTLOOK

CREDIT MANAGER’S INDEX

METALS OUTLOOK

AUTOMOTIVE AND AEROSPACE OUTLOOK

AUTOMOTIVE OUTLOOK

AEROSPACE OUTLOOK

ISSUES OUTLOOK

ENERGY OUTLOOK

GLOBAL OUTLOOK

EUROZONE OUTLOOK

ASIA OUTLOOK

SOUTH AMERICA OUTLOOK

GLOBAL BUSINESS SURVEY INSIGHTS

THE FINAL WORD

PUBLISHER’S STATEMENT

Publisher’s Statement

As we all make a collective sigh, some in relief, some in resignation, the good news is that the daily noise of the election distraction is over, although some pollsters are already weighing the public’s interest in potential candidates for 2020. That aside, it’s time to get back to business. Manufacturing has shown some signs of strengthening in the fourth quarter as we head into 2017, even though capital expenditures remain very weak for the sector. Machine tool orders for August, September and October were up and it is an important indicator for future production although reporting lags by a full 45 days. ewer countries are in recession territory and Brazil may be at or nearing their bottom. Brexit is the ho-hum we expected; albeit, no one really knows when it will play out or whether other countries will follow suit. Interestingly, there is more noise in Scotland about pulling out of the UK and rejoining the EU than there is in another EU country exiting the EU. Overall, the U.S. appears poised for GDP growth in the low 2’s according to most experts and analysts with an occasional loose hare suggesting some-thing above 3, which would include our President-elect. According to the charts in TradingEconomics.com, U.S. exports have tripled since 2002 in spite of the Great Recession of 2008 and the strong dollar since late 2014. As other country economies recover, their currency should strengthen against the dollar, stimulating more trade – unless – the President-elect slaps on tariffs, kills the TPP, cripples NAFTA and believes that isolationism and protectionism mixed with trickle-down economics will boost U.S. exports. Doesn’t exactly sound like a recipe for success, does it? Employment in manufacturing continues to be – odd. The industry shows somewhere near 300,000 open jobs without a headlong rush in hiring. Across the country we have heard that the absence of high-skilled workers, or those familiar with the digital machine world, is hampering hiring, despite more than 3 million teens graduating high school each year and STEM being part of the curriculum since 1985 with more and more refining emphasis on it each year since. By many measures, STEM is not turning out the skill set employers need and the knowledge gained during a four-year degree is two years old when new college grad hires take their first cubicle seat. Many were looking to the federal government to help – from any Department: Education, Labor, Commerce – but nothing of any significance has transpired over the last 8 or 12 years. “No Child Left Behind” left a mess in its wake, and Common Core is about as reliable as common sense. The answer to the skills gap may be at the state level, but even they move at a slow pace with limited budgets compromised by existing debt. The actual answer lies within each business itself, and many of the associations that serve them. While the risk is that a skilled-up employee may jump ship to another employer, it is more likely they will stay and apply their new skills if the cerebral environment and practical application is dynamic. Having spoken with more than a handful of companies about this issue, it becomes more and more apparent that the skills gap will be closed within the manufacturers themselves, and not by some government program whether state or federal. It is a retooling cost that manufacturers will have to pay as they transition from 20th Century production lines into 21st Century manufacturing from concept to consumer and back again. And don’t discount the impact of robotics and automation. If people are unwilling to enter the industry, the industry will still move forward; if people push their expense of wages and benefits and more paid leave, they may imperil their own positions in the future.

Best Regards,

Lewis A. Weiss Publisher

   

MANUFACTURING OUTLOOK

THAT WAS THE MONTH THAT WAS, AND A SURPRISE TO SAY THE LEAST

by Royce Lowe

metals economyThe month saw an election result that was a surprise, to say the least. Donald Trump, on the back of many lies, threats and promises to make America great again, will hold the reigns for a minimum of four years.

We will say goodbye to Obamacare and may see the flood gates open on coal again. The Paris climate-rescue may be in jeopardy. Tariffs might be levied against goods made anywhere but in the fifty states. Trade agreements might be torn up and the U.S. might decide not to help its allies in NATO. China will be ‘confronted.’

Trump took credit for preventing 1,100 jobs going to Mexico from Carrier Corp., a subsidiary of a defense contractor but for the employees, that became a bad dream about a red herring. The final jobs saved is likely to be less than 1,000 and may only be 700; a largely symbolic gesture that cost the state of Indiana $7 million.

Meanwhile, across the Atlantic, Theresa May, Britain’s Prime Minister, has been given the right to trigger Brexit late next March. But her plan may be subject to parliamentary scrutiny. Brexit is turning out to be something that most of the people who voted for it, and some of those who didn’t, would not recognize. It will be an ongoing saga for an indeterminate time.

Manufacturing in the U.S., Europe and most of Asia came through November in quite good health, and an optimism that things will continue accordingly through the end of 2016 into 2017. The U.S. private sector created 216,000 jobs in November according to CNBC, 178,000 according to The Washington Post. The unemployment rate eased back to 4.6 percent.

The ISM PMI figure for U.S. manufacturing continued in growth mode in the month of November, with the PMI reading moving to 53.2, up from October’s 51.9 percent. The overall economy grew for the 90th consecutive month.

The IHS Markit PMI for the U.S. manufacturing sector increased to 54.1 in November, up from 53.4 percent in October, on the back of the fastest rise in production in 20 months with an accom-panying rise in new orders.

Employment and input buying increased during November, and cost inflation slowed from October’s two-year peak. The increase was mostly domestic driven, with only a slight contribution from exports.

The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Pro-duction, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.

The Bureau of Economic Analysis revised its estimate for the annual rate of Real GDP growth in the third quarter of 2016, putting it at 3.2 percent, up from the advance estimate of 2.9 percent. The figure for the second quarter was 1.4 percent.

GALLUP’s U.S. Economic Confidence Index was running at post-recession highs following the election, at +10 in late November, with the coincident job creation index matching the highest level in Gallup’s nine-year trend at +33.

World crude steel production for the 66 reporting countries for the month of October 2016 was 136.52Mt, up 3.3 percent y-o-y. U.S. crude steel produc-tion for October 2016 was 6.38Mt, down 2.5 percent y-o-y.

Primary Global Aluminum Production in October 2016 was reported at 4.986 million tonnes, of which 2.727 million tonnes, over 54 percent, was produced in China. The Gulf Corporation Council (GCC) produced 440,000 tonnes, North America 337,000 tonnes, Western Europe 320,000 tonnes and Eastern and Central Europe 337,000 tonnes.

NORTH AMERICAN PERSPECTIVE

by Royce Lowe

na-flag

The Institute for Supply Management PMI figure registered 53.2 percent in November, up 1.3 percentage points from October’s 51.9 reading, representing the third consecutive month of growth in manufacturing. There was growth in the overall economy for the 90th consecutive month.

Eleven of the 18 manufacturing industries reported growth in November in the following order: Miscellaneous Manufacturing; Petroleum & Coal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; and Primary Metals. The six industries reporting contraction in November, listed in order are: Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Furniture & Related Products.

Comments from the manufacturing sector were to all intents and purposes positive, and most industries are looking for increased demand and strong bookings going into 2017.

Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for November. October’s readings are in parentheses:

    New orders                     53.0 (52.1)

    Production                      56.0 (54.6)

    Employment                   52.3 (52.9)

    Supplier Deliveries                  55.7 (52.2)

    Inventories                    49.0 (47.5)

The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry:

Customer Inventories    49.0 (49.5) 

    Prices                             54.5 (54.5)

    Backlog of orders           49.0 (45.5)

    New export orders          52.0 (52.5)

   Imports                         50.5 (52.0)

Commodities up in Price in November were:

Aluminum*; Caustic Soda; Copper; Corrugate (2); Corrugated Boxes; Linerboard; Methanol (2); Scrap Steel; Stainless Steel (8); Steel (11); and Steel — Cold Rolled.

Commodities Down in Price:

Aluminum* (2); Natural Gas; Plastic Resins; Propylene; and Steel — Hot Rolled (4).

Commodities in Short Supply

None.

Note: The number of consecutive months the commodity is listed is indicated  after each item.

*Reported as both up and down in price.

CANADA’S IHS Markit Manufacturing PMI increased to 51.5 in November from October’s 51.1 reading, as manufacturing growth picked up to a four-month high.. Production and new orders were up, with the fastest rise in new orders since April and the first rise in export orders since June. Employment was up.

Alberta and B.C. were the best performers, showing their fastest rise in new orders since August 2014. Ontario and Quebec showed lower new order volumes, largely reflected in lower export sales. Canada produced 1.03 Mt of crude steel in October, up 10.5 percent y-o-y. Canada’s light vehicle sales were up 10.4 percent y-o-y to 160,573 units, bringing the total for the year to 1.823 million units, just 75,000 short of the record 1.898 million set in 2015.

MEXICO’s PMI in November was at 51.1, down from 51.8 percent in October. Growth in production and new orders was relatively subdued compared to that in October, and there was a reduction in export orders.

Mexico produced 1.65Mt of crude steel in October, up 21.7 percent up y-o-y.

Here are the latest figures for US new car and light truck sales for ‘the big eight’ for November 2016.

The ‘Big Eight’ November   ’16 November   ’15

YTD

% change

General Motors 252599 229296 10.2
Ford 196441 186889 5.1
Toyota 197645 189517 4.3
FCA 158389 184871 -14.3
Honda 122924 115441 6.5
Nissan 115136 107083 7.5
Hyundai/Kia 115011 105560 8.9
VW 29672 23882 24.2
Total new cars and light trucks 1380558

1331056

 

3.7


Total cars                  531,108                547,946                -3.1

                      

Total l/trucks           849,450                783,110                8.5

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month.

The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

 

GDP

Industrial

Production

Consumer Prices Unemployment
United States +3.2 (qtr) – 0.9 (Oct) +1.6 (Oct) 4.9 (Oct)
Canada +3.5 (qtr) +2.8 (Sept) +1.5 (Oct) 7.0 (Oct)
China +7.4 (qtr) +6.1 (Oct) +2.1 (Oct) 4.0 (Qtr 3)
Japan +2.2 (qtr) – 1.3   (Oct) +0.2 (Oct) 3.0 (Oct)
Britain +2.0 (qtr) +0.3 (Sept) +0.9 (Oct) 4.8 (Aug)
Euro Area +1.4   (qtr) +1.2 (Sept) +0.6 (Nov) 10.0 (Sept)
France +1.0 (qtr) -1.1 (Sept) +0.5 (Nov) 10.2 (Sept)
Germany +0.8   (qtr) +1.1 (Sept) +0.8 (Nov) 6.0 (Nov)
Italy +1.3   (qtr) +1.8 (Sept) +0.1   (Nov) 11.7 (Sept)
Spain +2.9   (qtr) +1.2 (Sept) +0.6 (Novt) 19.3 (Sept)
India +8.3   (qtr) +0.7 (Sept) +4.2 (Oct) 5.0 (2015)
Brazil – 3.3   (qtr) -4.9 (Sept) +7.9 (Oct) 11.8 (Oct)
Taiwan + 3.9 (qtr) +3.7 (Oct) +1.7 (Oct) 3.9 (Oct)
Mexico +4.0   (qtr) -1.3 (Sept) +3.1 (Oct) 3.6 (Oct)

CREDIT MANAGER’S INDEX
by Chris Kuehl, Ph.D.

look-aheadBusiness data has been more than unpredictable of late. The elections are to be thanked for much of this. There was a great deal of flux during the campaign as everybody seemingly waited to see what would happen next. The surprise win for Trump set off alarm bells, but these quickly faded as it was assumed that his policies were more overtly aimed at economic growth.

“Post-election, there is still trepidation in some sectors and enthusiasm in others,” said NACM Economist Chris Kuehl, Ph.D. The data from the CMI this month reflects this shifting attitude, but

there is an additional caveat to be aware of, Kuehl noted. The response to the survey was less robust than it has been in past months. This creates some concern that readings might be skewed as compared with where they have been and might be in future months.

The overall score for the index stayed close to what it has been the last two or three months. It is slightly down at 52.9 compared with 53.5 in October and 53.7 in September. The interesting dynamic is found in comparing the favorable factors with the unfavorable ones, however. Overall favorable factors improved to 60.3, back to the level seen in September when it hit 59.5. The score for the unfavorable factors caused the most concern as it has fallen to 48 from 50.3. This reading has returned to the levels seen earlier in the year when the numbers were in the high 40s. This month is the lowest reading yet this year, but only by a point.

“The manufacturing sector has been more than a little cautious this year as the outcome of the election promised major changes regardless of who the victor would be,” said Kuehl. “That caution played out in delayed orders and very careful management of cash flow.” This pattern was visible with this last month’s readings as well. The overall score was very close to what it was last month—52.3 vs. 52.9. There was not as much similarity between the favorable and unfavorable sections, however. The gains in the favorable category, with a reading of 5, put the numbers back to where they were a month ago. They were 56.4 in October and 59.1 in September. The overall score for the unfavorable readings was 47.8, considerably lower than the previous reading of 50.6, but frankly these numbers have been weak all year with six of the 12 months under 50. The devil (as always) is in the details.

METALS OUTLOOK by Royce Lowe

US Forging IndustryChina’s vow to eliminate 100/150 million tons of steelmaking capacity by 2020, from a total capacity of 1.2 billion tons, has culminated in the merger of Shanghai-based Baosteel Group and Wuhan Iron and Steel Group in the central province of Hubei. The two groups were combined to create China Baowu Steel Group, second only to ArcelorMittal. The company has assets of $105.9 billion and 228,000 employees. The two companies produced a combined total of 60 million tons in 2015.

The National Tooling and Marketing Association has stressed to the U.S. International Trade Commission the fact that high duties on tool steel imports would adversely affect U.S. tool and die manufacturers and would threaten thousands of jobs.

Tool steel is produced in insufficient quantities and grades in the U.S. to satisfy requirements, and as such imports of such products are a necessary part of U.S. manufacturing.

Is a steel problem bringing grief to France’s flagship energy supplier? EDF (Electricité de France) is in the midst of a crisis involving higher-than-specified carbon contents found in certain steel samples taken from (mostly) bases of cylindrical steam generators. The tests were ordered by the Nuclear Safety Authority (ASN) who are concerned that the high carbon levels, in some cases 50 percent above permitted levels, may cause fracture ‘in case of a sudden change in the temperature of the steel.’ In question are Creusot Forge, owned by France’s Areva, and Japan Casting and Forging Corporation.

Eight reactors are idle and coal is being burned at a rate not seen since the 1980s. Were data falsified and why was the problem not spotted? ASN are auditing files that go back decades.

Bad news for EDF and its customers – it has 88 percent coverage in France – and possibly bad news for the Paris Climate Change Agreement.

AUTOMOTIVE AND AEROSPACE OUTLOOK by Royce Lowe

AUTOMOTIVE OUTLOOK 

us-car-factiryGLOBAL AUTOMAKERS delivered 7.90 million vehicles in October, up 4.6 percent y-o-y. North America took 23 percent of the vehicles, Europe 22 percent, South America 4 percent, Asia/Pacific 50 percent and other markets 1 percent.

Tesla Motors will buy German manufactur-ing technology provider Grohmann Engineering GmbH in prepar-ation for production of its first mass-market model.

Grohmann will become the basis of an automation division Tesla is setting up in Germany. Several critical elements of Tesla’s automated manufacturing systems will be designed and produced at Grohmann’s plant, and it is believed these will aid both speed and quality of production and reduce capital expenditures required per vehicle.

The Model 3, priced at $35,000 before government incentives, will go on sale in late 2017, and Tesla is looking to increase production capacity by ten times from 2015 levels to 500,000 units per year by 2018.

VWVolkswagen has agreed with workers to cut up to 30,000 jobs worldwide, and to save $3.9 billion on expenses, as the company fights its way back from the emission-cheating scandal and to prepare to invest in electric vehicles, when it will need to hire software engineers and battery specialists. VW is talking of producing 3 million electric cars per year by 2025.

Reduction of the workforce by around 5 percent will be done by attrition as VW agreed to refrain from forced layoffs until 2025.

Toyota recently settled a class-action lawsuit for approximately $3.4 billion brought by owners of trucks and SUVs who complained of a lack of rust protection on vehicle frames, and consequent corrosion problems. One-and-a-half million Tacomas, Sequoias and Tundras, sold between 2005 and 2010 were involved.

Toyota admitted no wrongdoing, but offered to inspect the affected vehicles, to replace the frames free of charge, and to reimburse those owners who have already replaced the frames at their own expense.

President-Elect Trump’s threatened 35 percent tariff on cars made in Mexico would, Ford’s CEO Mark Fields reminds us, be imposed on the whole auto sector. Mr. Fields sent the President-Elect a congratulatory letter – on his election.

Following the reassurances that the British Government gave to Nissan, which persuaded them to continue manufacturing in the UK post-Brexit, the boss of Ford Europe has stated he will be looking for similar reassurances.

AEROSPACE OUTLOOK

Arconic, the Alcoa aerospace, automotive and construction products spin-off, reports a new, multi-year, $1 billion contract with Airbus to supply aluminum sheet and plate products for commercial aircraft programs, starting in January 2017.

Arconic will effectively be the sole supplier to Airbus for specific applications, including some wing, fuselage and structural components. Aluminum and aluminum-lithium alloy flat products will be processed on a new plate-stretching line which will reduce stresses in the products and allow easier forming and machining.

geGE Aviation has a new ‘memorandum of understanding’ (MOU) with COMAC, the Commercial Aircraft Corporation of China, concerning ‘digital collaboration’ that will outline how the two aviation-focused manufacturers plan to work together on digital solutions and applications for customer and product support monitoring and diagnostics, ‘intelligent aircraft’ and Brilliant Manufacturing – a GE software that will predict and react to changes in supply-chain conditions, manufacturing resources etc. GE says this partnership will assemble scientific personnel from the two companies so they may bring some semblance of scientific order to the ten billion data points produced annually by the aviation sector.

Following CEO Alain Bellemarre’s cost-cutting measures, profit forecasts at Bombardier are looking much more positive. The company has slowed the rate at which it has been gobbling up funds, and analysts are gaining confidence in the company’s ability to meet its long-term targets.

President-Elect Trump, referring to a new order for Airforce One, says he wants Boeing ‘to make a lot of money but not THAT MUCH money’ and is suggesting that the order should be cancelled. 

ISSUES OUTLOOK by Royce Lowe and Tim Grady

boeingSeattle, we have a problem? In spite of monthly reminders that the number of jobs in manufacturing is decreasing, we are periodically party to the news that almost 3.5 million manufacturing jobs will need to be filled in the next decade. At Boeing, some 35 percent of the 29,645 machinists in the company’s Seattle industrial hub are 55 or older, whereas overall, 23 percent of the 15.3 million Americans working in manufacturing are in that age group.

There has been a voluntary layoff offer with Boeing controlling who leaves; but people retire, and whichever way the situation is looked at there is a potential problem. The company is stepping up training and mentoring programs for the short term, and for the long term is investing in vocational training at middle schools, where it is trying to impress upon young people all the worthwhile qualities of manufacturing as a career; in other words, how ‘cool’ it is.

Siemens, meanwhile, has granted $357 million in software to Clemson University. The software will be incorporated into student coursework and projects that relate to computer assisted design, engineering simulation, industrial design, digital manufacturing and manufacturing management in Clemson’s College of Engineering, Computing and Applied Sciences.

China’s R & D spending, and innovation is overtaking that of the U.S. according to analysts from Credit Suisse Group AG. This is all to help China switch from investment-driven to knowledge-intensive growth as its labor force shrinks.

China’s R & D spending in 2015, at $205 billion, was more than double the 2009 figure, and as a proportion of GDP it climbed to 2.1 percent from 1.7 percent over the same period.

CEOs and Leaders, mainly American, have signed an open letter to President-Elect Trump, urging him not to withdraw the U.S. from the climate-rescue Paris agreement.

In a similar vein, American multinationals, with $228 billion in China investments have taken exception to Trump’s talk of trade confrontation with China., stating that such a confrontation would potentially disrupt China’s vast chain of suppliers throughout Asia, along with the price of consumer goods it exports to worldwide markets.

India’s Prime Minister MODI wants more manufacturing jobs in his country, which currently contributes only about 6 percent of the value of phones sold in India through local manufacturing or assembly. This could increase to 30 percent in five years.

India overtook the U.S. this year to become the world’s second-largest smartphone market and forecasts are for 1 billion sales in the next five years. In China and South Korea 70 percent and 50 percent respectively are the figures for work done domestically.

mtr-adManufacturing Talk Radio is experiencing more listeners live and downloading the podcasts each month, with over 400,000 downloads over the last 36 months. It is also kicking off a charter advertising program that companies can lock into at a very economical cost. It includes a 30-second ad during several radio shows, display ads in the Manufacturing Talk Radio website, and a display ad in this monthly newsletter, along with some additional exposures in show announcements. Advertisers who are interested in getting more details should send an email to info@mfgtalkradio.com and put ADVERTISING in the subject line.

Charter advertisers will obtain favourable ad rates for all of 2017.

Manufacturing Talk Radio is also expanding its content to include special in-depth reports by thought leaders and industry experts, along with on-site interviews with manufacturing mavens migrating from the 20th Century mass production model into the 21st Century specialized production model from concept to consumer and back again – a 360-degree approach to making products designed for smaller but more plentiful market groups or individuals.

Visit www.mfgtalkradio.com often for updates.

ENERGY OUTLOOK by Royce Lowe

energyCanada’s Prime Minister Justin Trudeau is facing off against Donald Trump on Old King Coal. Canada gets 80 percent of its electricity from non-emitting sources, and will phase out traditional coal power by 2030.

Coal power represents about 8 percent of Canada’s greenhouse gas emissions and accounts for 11 percent of the country’s electricity.

Ontario, Canada’s most populous province phased out coal over the past decade with a resulting improvement in air quality.

Electricity rates have roughly doubled.

Tesla Motors Inc. and SolarCity Corp shareholders approved Tesla’s purchase of

the solar installer. Over 85 percent of Tesla shares voted in favor and SolarCity’s shareholders also approved the $2 billion acquisition.

Despite major investors’ worries about the debt Tesla will be taking on, one Austen Allred, an executive at a San Francisco startup, tweeted Elon Musk to say he’d put all his money into Tesla and didn’t care if he lost it all, as he liked what Musk was doing and had done. Musk was suitably gracious in his acknowledgement. 

France’s TOTAL, one of the world’s biggest oil companies, has signed a memorandum of understanding (MOU) with Iran’s National Oil Company for the development of phase II of South Pars, the world’s largest natural gas deposit. As such the French group is the first western oil company to return to Iran. After many months of discussion a contract worth over $2 billion is in the offing. It is also a reward for a long presence in the country for a company that never closed its office in Teheran, not even during the sanctions period.

Iran has the world’s fourth-largest oil deposits and the largest (at 8 percent of global reserves) of natural gas. Total will act as project operator alongside China’s CNPC and Iran’s Petropar. Its role will be production of gas in a new zone of South Pars and the use of this gas to supply a liquefied natural gas plant. Negotiations are not complete but the final agreement should be signed within six months.

Solar-Panel Roads? Many methods of generating electricity have been tried over the years, but maybe this is totally new. A unit of Colas SA, a subsidiary of France’s Bouygues SA, has designed solar panels that embed into roads. Work is progressing on a large test site in Northern France.

The panels, now being built into road surfaces, will withstand the weight of an 18-wheeler truck. They are the result of some five years of research and laboratory tests and there are plans to commercialize in early 2018.

Why? It is said that solar farms use land that could otherwise be used for agriculture. Plans are afoot for further tests in Calgary, Alberta; the U.S. state of Georgia; Japan, Africa and the E.U.

The idea may not take off unless there is a serious shortage of land.

GLOBAL OUTLOOK by Royce Lowe

EUROZONE OUTLOOK

IHS Markit

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) took a further upturn in November to 53.7 from October’s 53.5 reading, its high-est level since January 2014, on the back of strong performances from The Netherlands, Germany, Austria and Spain.

Output prices were up at the fastest pace in over five years as cost inflation rose to a 56-month record. The month saw further growth in production, new orders and employment and overall expansion for the 41st consecutive month. There was increasing demand from both domestic and export markets.

Outstanding business was up at one of the quickest rates since early 2011, with increases in all nations with the exception of Greece and Italy.

New export orders for manufactured goods rose at the fastest pace since February 2014, aided by a weak euro.

 

  PMI High/low
Netherlands 57.0 (55.7) 35-month high
Austria 55.4 (53.9) 66-month high
Spain 54.5 (53.3) 10-month high
Germany 54.3 (55.0) 2-month low
Ireland 53.7 (52.1) 8-month high
Italy 52.2 (50.9) 5-month high
France 51.7 (51.8) 2-month low
Greece 48.3 (48.6) 12-month low

  

New car registrations in Germany were up 1.5 percent in November to 276,567; in Spain up 14 percent to 92,653; in Italy up 8.2 percent to 145,835 and in France up 8.5 percent to 163,170. In all cases there was a heavy percentage of business and rental sales. As there was in the UK, where registrations were up 2.9 percent to 184,101: demand from retail customers fell for the eighth consecutive month, but there was a strong demand from business.

Crude steel production in Germany in October was at 3.51Mt, down 3.7 percent y-o-y; in Italy 2.13Mt, up 11.4 percent y-o-y; in France 1.32Mt, up 12.8 percent y-o-y and in Spain 1.19Mt, down 10.5 percent y-o-y.

Russia’s crude steel production for October was at 5.94Mt, up 2.0 percent y-o-y; Ukraine’s was 1.93Mt, down 6.1 percent y-o-y.

IHS Markit reports growth in production and new orders in the UK manufacturing economy are trailing off, but remain above long-term trends. The PMI fell from Oct-ober’s 54.3 reading to 53.4 in November.

There was solid growth in production and new orders, both domestic and export, with the weak sterling being good for export orders but bad for input costs. Orders for investment goods eased sharply in the fourth quarter. There were reports of shortages in steel, paper and timber products.

The UK produced 0.707Mt of crude steel in October, down 22.3 percent y-o-y.

 

ASIA OUTLOOK

 Asia Outlook

Manufacturing production continued at a fairly healthy pace in China in November, albeit with a slower expansion of total new orders. New export business was mostly stable following a slight decrease in October.

Cost cutting saw a fall in staffing, but at the slowest rate seen in 18 months.

The Caixin PMI figure for November was 50.9, down slightly from October’s 51.2 reading. 

CHINA produced 68.5Mt of crude steel in October, up 4.0 percent y-o-y; Japan 9.06Mt up 0.6 percent y-o-y; India 8.27Mt, up 12.3 percent y-o-y and South Korea 5.96Mt, down 2.1 percent y-o-y. Taiwan produced 1.86Mt in October, up 9.9 percent y-o-y.

Chinese passenger car sales for the first ten months of 2016 were up 15.4 percent y-o-y to 19,095,800 units. In October the overall market was up 18.5 percent to 2,649,900 units. 

JAPAN’s manufacturing sector saw its PMI virtually unchanged in November, falling very slightly from October’s 51.4 to 51.3 in November.

New order growth went to a ten-month high, production was up for the fourth consecutive month, and new export orders increased for the third consecutive month. Both intermediate and investment goods producers noted production growth.

Rupee demonitization, or the withdrawal of high-value banknotes, is reported to have adveresely affected growth in INDIAN manufacturing, as manifested by a softer growth in new orders and production. November saw the eleventh consecutive monthly improvement in manufacturing conditions with the Nikkei PMI albeit down to 52.3 in November from October’s 22-month high of 54.4.

The reason for the cash withdrawal was to prevent hoarding of large banknotes and accompanying tax avoidance.

 

SOUTH AMERICA OUTLOOK

south-america

In Brazil, the manufacturing downturn continues with further falls in new orders, production and employment.

The PMI for November, at 46.2, very slightly down from October’s 46.3 figure, represents the 22nd consecutive month of contraction in the Brazilian manufacturing industry. There are no signs to suggest improvement in the near term.

Brazil’s crude steel production for the month of September was 2.72Mt, a decrease y-o-y of 8.8 percent.      

The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management)ticked up slightly from October’s 52.0 to November’s 52.1 reading, a 27-month high.

Of the 30 nations for which November data were available, 22 showed improved operating conditions, with growth up to a 13-month high in the U.S. and a 34-month record in the Eurozone. There was continuing, but slowing expansion in China, Japan, India and the UK. Russia and Taiwan also showed growth, but contraction was seen in South Korea, Indonesia, Thailand, Turkey, Malaysia, Brazil and Greece.

Global production was up for the sixth consecutive month in November, coincident with higher levels of new orders, both domestic and export. There was job creation at global manufacturers for the third consecutive month, with employment up in the U.S., the Eurozone, Japan, the UK, India, Canada, Mexico and Taiwan, while decreases were noted in China, S. Korea, Russia and Brazil.

Backlogs of work at manufacturers rose for the sixth consecutive month and to the greatest extent for 20 months.

 

GLOBAL BUSINESS SURVEY INSIGHTS by Norbert Ore

earthWe now have 11 months on the record for 2016 and from the standpoint of the global economy, it will be deemed mediocre at best. And that follows 2015 which is also noted for mediocrity. So we have two relatively weak years that teetered on a manufacturing recession, but somehow escaped major contraction.

In October, we indicated a possible “large step forward based on global survey data.” Now we see in the November data a further acceleration that isn’t easily explained – from the data, we can’t pinpoint “causes” that would change the “effects” to that which we are seeing. We see the world through a growth lens, and there hasn’t been much to observe in the last two years.

Now we are closing the books on November and in reviewing the data from 21 countries, we find 19 are growing and two (South Korea and Brazil) are declining. Among those growing, the U.S., the EZ, and the UK are the leaders. In the seventh year of a business cycle, a reacceleration of this nature is difficult to explain.

Scattergram

The Eurozone PMI (53.7, +0.2) rose to its highest level since January 2014. The strong showing was led by Netherlands (57.0, +1.3), Austria (55.4, +1.5), Spain (54.5, +1.2), Germany (54.3, -0.7), and Ireland (53.7, +1.6).

The UK PMI (53.4, -0.9) reveals slower growth when compared to October, but they are in their fourth month of growth following the BREXIT. Weaker sterling may make it difficult to sustain recent output levels.

In November, China’s Official Report, the CFLP PMI (51.7, +0.5) rose to its highest level in since July 2014, while the Caixin China General Manufacturing PMI (50.9, -0.2) decelerated slightly, but remains in positive territory for the fifth consecutive month. In North America, Canada (51.5, +0.4) reported growth for the ninth month following a seven month con-traction.

Mexico (51.1 -0.7) recorded its 40th consecutive month of 12/5/16 growth, however, a weaker trend is apparent as the PMI has averaged only 51.2 percent during the past six months.

THE FINAL WORD

Actually, in the overall, manufacturing is looking a better more solid at the moment with the PMI numbers moving in the direction of expansion and strengthening for most countries and most areas of the U.S. How long that positive riff continues depends largely on the new incoming administration of President-elect Donald J. Trump and several elections happening in Europe in 2017.

Last Months Issue can be seen HERE

All OTHER ARCHIVE BACK ISSUES
2016

Jan 2016
Feb 2016
March 2016
April 2016
May 2016
June 2016
July 2016
August 2016
September 2016
October 2016
November 2016

Manufacturing ISM® Report On Business®

March 2020

PMI® at 49.1%

Production, New Orders, and Employment Contracting
Supplier Deliveries Slowing at Faster Rate; Backlog Contracting
Raw Materials Inventories Contracting; Customers’ Inventories Too Low
Prices Decreasing; Exports and Imports Contracting

(Tempe, Arizona) — Economic activity in the manufacturing sector contracted in March, and the overall economy grew for the 131st consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The March PMI® registered 49.1 percent, down 1 percentage point from the February reading of 50.1 percent. The New Orders Index registered 42.2 percent, a decrease of 7.6 percentage points from the February reading of 49.8 percent. The Production Index registered 47.7 percent, down 2.6 percentage points compared to the February reading of 50.3 percent. The Backlog of Orders Index registered 45.9 percent, a decrease of 4.4 percentage points compared to the February reading of 50.3 percent. The Employment Index registered 43.8 percent, a decrease of 3.1 percentage points from the February reading of 46.9 percent.

“The Supplier Deliveries Index registered 65 percent, up 7.7 percentage points from the February reading of 57.3 percent, and limited the decrease in the composite PMI®. The Supplier Deliveries Index is one of five equally weighted subindexes that directly factor into the PMI®, along with New Orders, Production, Employment and Inventories. Supplier Deliveries is the only ISM® Report On Business® index that is inversed — a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases. However, the high index reading in March was primarily a product of coronavirus-related supply problems.

“The Inventories Index registered 46.9 percent, 0.4 percentage point higher than the February reading of 46.5 percent. The Prices Index registered 37.4 percent, down 8.5 percentage points compared to the February reading of 45.9 percent. The New Export Orders Index registered 46.6 percent, a decrease of 4.6 percentage points compared to the February reading of 51.2 percent. The Imports Index registered 42.1 percent, a 0.5-percentage point decrease from the February reading of 42.6 percent.

“Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility. The PMI® returned to contraction territory, and with a negative trajectory. Demand slumped, with (1) the New Orders Index contracting at a strong level, in part pushed by new export order contraction, (2) the Customers’ Inventories Index remaining at ‘too low’ status, but increasing at a level considered a negative for future production, (3) the Backlog of Orders Index contracting again, at a moderate rate. Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 5.7-percentage point decrease) to the PMI® calculation, with activity contracting at a faster rate. Inputs — expressed as supplier deliveries, inventories and imports — strengthened in March, due primarily to supplier delivery difficulties; inventory contraction stabilized. Despite imports contracting at strong rates due primarily to coronavirus impacts, inputs contributed positively to the PMI® calculation (the Imports Index does not directly factor into the PMI®). Prices continued to contract (and at a faster rate in March), supporting a negative outlook.

“The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors. Among the six big industry sectors, Food, Beverage & Tobacco Products remains strongest, followed by Chemical Products, which in addition to the pharmaceutical component, is a significant contributor to the Food, Beverage & Tobacco Products Industry and beneficiary of low energy and feedstock prices. Transportation Equipment and Petroleum & Coal Products are the weakest sectors. Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio,” says Fiore.

Of the 18 manufacturing industries, the 10 that reported growth in March — listed in order — are: Printing & Related Support Activities; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Wood Products; Paper Products; Chemical Products; Computer & Electronic Products; Primary Metals; Miscellaneous Manufacturing; and Plastics & Rubber Products. The six industries reporting contraction in March, in order, are: Petroleum & Coal Products; Textile Mills; Transportation Equipment; Furniture & Related Products; Fabricated Metal Products; and Machinery.

WHAT RESPONDENTS ARE SAYING
    • “COVID-19 is impacting China’s raw material supply chain. We are now seeing revenue impact in that region. Our operations team is reviewing plans for spread of the virus.” (Computer & Electronic Products)
    • “The two main issues affecting our business [are] COVID-19 and the oil-price war. We are in daily discussions and meeting constantly, updating tracking logs to document high risk concerns.” (Chemical Products)
    • “COVID-19 impact has extended to Europe and North America. The virus escalation is affecting our purchasing and logistics operations. We have incurred air-shipment and production interruptions due to shortages of raw materials and components.” (Transportation Equipment)
    • “We are experiencing a record number of orders due to COVID-19.” (Food, Beverage & Tobacco Products)
    • “World demand for petroleum products is declining, while supply is ramping up. We have lost supply chain visibility to certain locations.” (Petroleum & Coal Products)
    • “COVID-19’s spread in the U.S. may start impacting our domestic business. As for Asian suppliers, they are starting to get back up to speed.” (Fabricated Metal Products)
    • “COVID-19 has caused a 30-percent reduction in productivity in our factory.” (Machinery)
    • “A big part of our business is hospitality, and we are seeing demand drop and an increase in cancellations.” (Nonmetallic Mineral Products)
    • “All North American manufacturing plants have ceased operations or drastically scaled back as a result of customer plant closings and other responses to COVID-19.” (Plastics & Rubber Products)
  • “Volumes are down 4.3 percent, and some areas of the supply chain are being affected by the coronavirus.” (Furniture & Related Products)

Manufacturing at a Glance
March 2020

Index Series Index Mar Series Index Feb Percentage Point Change Direction Rate of Change Trend* (Months)
PMI® 49.1 50.1 -1.0 Contracting From Growing 1
New Orders 42.2 49.8 -7.6 Contracting Faster 2
Production 47.7 50.3 -2.6 Contracting From Growing 1
Employment 43.8 46.9 -3.1 Contracting Faster 8
Supplier Deliveries 65.0 57.3 +7.7 Slowing Faster 5
Inventories 46.9 46.5 +0.4 Contracting Slower 10
Customers’ Inventories 43.4 41.8 +1.6 Too Low Slower 42
Prices 37.4 45.9 -8.5 Decreasing Faster 2
Backlog of Orders 45.9 50.3 -4.4 Contracting From Growing 1
New Export Orders 46.6 51.2 -4.6 Contracting From Growing 1
Imports 42.1 42.6 -0.5 Contracting Faster 2
OVERALL ECONOMY Growing Slower 131
Manufacturing Sector Contracting From Growing 1
Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

Commodities reported up/down in price and in short supply

Commodities Up in Price

Capacitors (2); Circuit Card Assemblies; Isopropyl Alcohol; Personal Protective Equipment (PPE) — Gloves; Resistors (2); Steel — Hot Rolled* (5); and Steel Products (2).

Commodities Down in Price

Aluminum (2); Aluminum Products (3); Base Oils; Copper (2); Corrugate (2); Crude Oil (2); Diesel Fuel; Fuel; Heating Oil; Natural Gas (4); Oil Products; Plastic; Scrap (2); and Steel — Hot Rolled* (2).

Commodities in Short Supply

Cleaning Wipes; Hand Sanitizer; Isopropyl Alcohol; Paper Towels; Personal Protective Equipment (PPE) — Gloves; PPE — Masks; and Toilet Paper.

Note: The number of consecutive months the commodity is listed is indicated after each item. *Indicates both up and down in price.


MARCH 2020 Manufacturing Index Summaries


PMI®

Manufacturing contracted in March, as the PMI® registered 49.1 percent, a 1-percentage point decrease from the February reading of 50.1 percent. “The PMI® contracted in March after expanding marginally in January and February. Three of the big six industries expanded, with Food, Beverage & Tobacco Products expanding strongly. Only one (Supplier Deliveries) of the PMI®’s 10 subindexes recorded expansion, down from four the previous month,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 42.8 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March PMI® indicates growth for the 131st consecutive month in the overall economy, but a return to contraction by the manufacturing sector following two months of expansion. “The past relationship between the PMI® and the overall economy indicates that the PMI® for March (49.1 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

Month PMI®
Mar 2020 49.1
Feb 2020 50.1
Jan 2020 50.9
Dec 2019 47.8
Nov 2019 48.1
Oct 2019 48.5
Month PMI®
Sep 2019 48.2
Aug 2019 48.8
Jul 2019 51.3
Jun 2019 51.6
May 2019 52.3
Apr 2019 53.4
50.0
53.4
47.8

New Orders

ISM®’s New Orders Index registered 42.2 percent in March, a decrease of 7.6 percentage points compared to the 49.8 percent reported for February. This indicates that new orders contracted for the second consecutive month. This is the index’s lowest reading since March 2009, when it registered 41.3 percent. “Of the top six industry sectors, three expanded, with Food, Beverage & Tobacco Products expanding strongly, and Chemical Products and Computer & Electronic Products expanding modestly. Fabricated Metal Products, Transportation Equipment and Petroleum & Coal Products are in strong contraction territory,” says Fiore. A New Orders Index above 52.5 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Of the 18 manufacturing industries, nine reported growth in new orders in March, in the following order: Wood Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Paper Products; Chemical Products; and Computer & Electronic Products. The nine industries reporting a decline in new orders in March — in the following order — are: Petroleum & Coal Products; Transportation Equipment; Primary Metals; Textile Mills; Nonmetallic Mineral Products; Furniture & Related Products; Miscellaneous Manufacturing; Fabricated Metal Products; and Machinery.

New Orders % Higher % Same % Lower Net Index
Mar 2020 23.5 44.4 32.1 -8.6 42.2
Feb 2020 28.8 49.1 22.0 +6.8 49.8
Jan 2020 24.8 54.4 20.8 +4.0 52.0
Dec 2019 18.6 51.2 30.2 -11.6 47.6

Production

ISM®’s Production Index registered 47.7 percent in March, 2.6 percentage points lower than the 50.3 percent reported for February, indicating a return to contraction following two months of expansion. “Two of six big industry sectors expanded, the same number as the previous month. A lack of new orders, insufficient backlog and supplier delivery restrictions contributed to reduced production output,” says Fiore. An index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The seven industries reporting growth in production during the month of March — listed in order — are: Wood Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Primary Metals; Food, Beverage & Tobacco Products; Chemical Products; and Electrical Equipment, Appliances & Components. The five industries reporting a decrease in production in March are: Transportation Equipment; Textile Mills; Fabricated Metal Products; Computer & Electronic Products; and Machinery. Six industries reported no change in production in March compared to February.

Production % Higher % Same % Lower Net Index
Mar 2020 21.5 53.7 24.8 -3.3 47.7
Feb 2020 26.4 53.5 20.1 +6.3 50.3
Jan 2020 25.3 55.9 18.8 +6.5 54.3
Dec 2019 15.8 49.8 34.4 -18.6 44.8

Employment

ISM®’s Employment Index registered 43.8 percent in March, a decrease of 3.1 percentage points compared to the February reading of 46.9 percent. This is the lowest reading since May 2009, when the index registered 35.3 percent. “This is the eighth month of employment contraction, and at a faster rate compared to February. Among the six big industry sectors, two expanded and four contracted. Twenty-nine percent of panelist comments noted staffing-expansion plans, with the rest indicating a slowing, hiring freeze or head-count reduction,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, three reported employment growth in March: Printing & Related Support Activities; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The 13 industries reporting a decrease in employment in March, in the following order, are: Petroleum & Coal Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Transportation Equipment; Fabricated Metal Products; Plastics & Rubber Products; Primary Metals; Furniture & Related Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Chemical Products; and Machinery.

Employment % Higher % Same % Lower Net Index
Mar 2020 8.6 70.1 21.3 -12.7 43.8
Feb 2020 11.7 69.1 19.2 -7.5 46.9
Jan 2020 11.7 66.0 22.3 -10.6 46.6
Dec 2019 11.5 63.7 24.8 -13.3 45.2

Supplier Deliveries*

The delivery performance of suppliers to manufacturing organizations was slower in March, as the Supplier Deliveries Index registered 65 percent. This is 7.7 percentage points higher than the 57.3 percent reported for February. “Suppliers continue to struggle to deliver, at a much stronger rate compared to February. The index reached its highest level since June 2018, when it registered 68.2 percent. The coronavirus pandemic was the focus of 66 percent of this subindex’s comments, with a third of those comments related to supply chain constraints from China,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 16 industries reporting slower supplier deliveries in March — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Transportation Equipment; Primary Metals; Computer & Electronic Products; Paper Products; Petroleum & Coal Products; Machinery; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Nonmetallic Mineral Products; Furniture & Related Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components. No industry reported faster supplier deliveries in March.

Supplier Deliveries % Slower % Same % Faster Net Index
Mar 2020 35.7 58.6 5.7 +30.0 65.0
Feb 2020 20.3 74.0 5.7 +14.6 57.3
Jan 2020 16.8 72.3 10.9 +5.9 52.9
Dec 2019 11.5 81.4 7.0 +4.5 52.2

Inventories

The Inventories Index registered 46.9 percent in March, a 0.4-percentage point increase from the 46.5 percent reported for February. “The index contracted for a 10th straight month, but at a slower rate. Inventories are expected to grow as disruptions in the supply chain lead to inefficiencies in material conversion and continued advance stocking to protect production schedules,” says Fiore. An Inventories Index greater than 44.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The five industries reporting higher inventories in March are: Printing & Related Support Activities; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Primary Metals; and Chemical Products. The 11 industries reporting a decrease in inventories in March — listed in order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Wood Products; Textile Mills; Machinery; Plastics & Rubber Products; Transportation Equipment; Fabricated Metal Products; and Computer & Electronic Products.

Inventories % Higher % Same % Lower Net Index
Mar 2020 20.5 55.0 24.5 -4.0 46.9
Feb 2020 14.9 66.6 18.5 -3.6 46.5
Jan 2020 18.2 61.2 20.6 -2.4 48.8
Dec 2019 17.5 58.1 24.4 -6.9 49.2

Customers’ Inventories*

ISM®’s Customers’ Inventories Index registered 43.4 percent in March, which is 1.6 percentage points higher than the 41.8 percent reported for February, indicating that customers’ inventory levels were considered too low. “Customers’ inventories are too low for the 42nd consecutive month; however, the index took a step toward ‘about right’ territory in March. These inventories remain at an acceptable level to support future production output. Of note: the ‘too low’ inventory in the Food, Beverage & Tobacco Products sector,” says Fiore.

Of 18 industries, the only industry reporting higher customer inventories in March is Transportation Equipment. The 12 industries reporting customers’ inventories as too low during March — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Textile Mills; Paper Products; Chemical Products; Plastics & Rubber Products; Furniture & Related Products; Computer & Electronic Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Machinery.

Customers’ Inventories % Reporting % Too High % About Right % Too Low Net Index
Mar 2020 75 11.4 64.0 24.6 -13.2 43.4
Feb 2020 76 6.6 70.4 23.0 -16.4 41.8
Jan 2020 77 10.1 67.5 22.4 -12.3 43.8
Dec 2019 79 8.8 64.7 26.5 -17.7 41.1

Prices*

The ISM® Prices Index registered 37.4 percent in March, a decrease of 8.5 percentage points from the February reading of 45.9 percent, indicating raw materials prices decreased for the second consecutive month, at a much faster rate. “Prices contracted in March, driven primarily by scrap steel, aluminum, corrugate, copper, heating oil and other energy sources. Prices contracted to their lowest level since January 2016, when the index registered 33.9 percent,” says Fiore. A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

The two industries reporting paying increased prices for raw materials in March are: Wood Products; and Computer & Electronic Products. The 15 industries reporting a decrease in prices for raw materials in March — listed in order — are: Petroleum & Coal Products; Primary Metals; Furniture & Related Products; Apparel, Leather & Allied Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Chemical Products; Transportation Equipment; Paper Products; Fabricated Metal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; and Miscellaneous Manufacturing.

Prices % Higher % Same % Lower Net Index
Mar 2020 11.6 51.7 36.7 -25.1 37.4
Feb 2020 16.6 58.6 24.8 -8.2 45.9
Jan 2020 23.8 59.2 17.1 +6.7 53.3
Dec 2019 16.5 70.5 13.0 +3.5 51.7

Backlog of Orders*

ISM®’s Backlog of Orders Index registered 45.9 percent in March, 4.4 percentage points lower than the 50.3 percent reported in February, indicating order backlogs contracted after expanding for one month. “Backlogs returned to contraction territory, as a result of weak new order and new export order levels. Only one of the six big industry sectors’ backlogs expanded during the period,” says Fiore.

Six of the 18 industries reported growth in order backlogs in March, in the following order: Apparel, Leather & Allied Products; Wood Products; Paper Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; and Chemical Products. In March, eight industries reported lower backlogs, in the following order: Petroleum & Coal Products; Primary Metals; Plastics & Rubber Products; Transportation Equipment; Miscellaneous Manufacturing; Fabricated Metal Products; Machinery; and Computer & Electronic Products.

Backlog of Orders % Reporting % Higher % Same % Lower Net Index
Mar 2020 90 18.1 55.5 26.3 -8.2 45.9
Feb 2020 88 21.8 57.0 21.3 +0.5 50.3
Jan 2020 88 17.1 57.2 25.6 -8.5 45.7
Dec 2019 89 12.6 61.4 26.0 -13.4 43.3

New Export Orders*

ISM®’s New Export Orders Index registered 46.6 percent in March, a decrease of 4.6 percentage points compared to the February reading of 51.2 percent. “The New Export Orders Index fell back into contraction territory after two consecutive months of growth. Only one of the six big industry sectors expanded during the period, down from three the previous month,” says Fiore.

The four industries reporting growth in new export orders in March are: Apparel, Leather & Allied Products; Paper Products; Chemical Products; and Miscellaneous Manufacturing. The six industries reporting a decrease in new export orders in March, in the following order, are: Transportation Equipment; Fabricated Metal Products; Machinery; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. Seven industries reported no change in exports in March compared to February.

New Export Orders % Reporting % Higher % Same % Lower Net Index
Mar 2020 76 12.5 68.1 19.4 -6.9 46.6
Feb 2020 78 14.8 72.9 12.3 +2.5 51.2
Jan 2020 77 15.4 75.9 8.8 +6.6 53.3
Dec 2019 79 11.3 72.2 16.6 -5.3 47.3

Imports*

ISM®’s Imports Index registered 42.1 percent in March, a decrease of 0.5 percentage point compared to the 42.6 percent reported for February. “For the second consecutive month, imports were in contraction territory, at levels not seen since the summer of 2009. As was the case in the Supplier Deliveries Index comments, respondents indicated the coronavirus as the primary cause of reduced import activity,” says Fiore.

The four industries reporting growth in imports in March are: Wood Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; and Chemical Products. The 11 industries reporting a decrease in imports in March — in the following order — are: Paper Products; Apparel, Leather & Allied Products; Primary Metals; Petroleum & Coal Products; Transportation Equipment; Machinery; Furniture & Related Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Fabricated Metal Products.

Imports % Reporting % Higher % Same % Lower Net Index
Mar 2020 83 16.5 51.4 32.2 -15.7 42.1
Feb 2020 85 12.2 60.8 27.0 -14.8 42.6
Jan 2020 84 13.6 75.4 11.0 +2.6 51.3
Dec 2019 85 13.3 71.0 15.7 -2.4 48.8
*The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures decreased by eight days in March to 135 days. Average lead time for Production Materials increased by one day in March to 65 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased by six days in March to 37 days.

Percent Reporting

Capital Expenditures Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Mar 2020 22 6 9 21 24 18 135
Feb 2020 22 5 7 19 28 19 143
Jan 2020 22 4 10 20 25 19 140
Dec 2019 20 5 9 19 26 21 147
Production Materials Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Mar 2020 12 28 31 20 7 2 65
Feb 2020 10 34 28 19 7 2 64
Jan 2020 11 34 27 18 8 2 65
Dec 2019 11 33 28 20 6 2 63
MRO Supplies Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Mar 2020 40 32 16 8 3 1 37
Feb 2020 40 38 14 6 2 0 31
Jan 2020 40 36 14 8 2 0 32
Dec 2019 40 35 15 5 4 1 37

November 2016 Manufacturing ISM® Report On Business®

PMI® at 53.2%

New Orders, Production and Employment Growing
Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in November, and the overall economy grew for the 90th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “The November PMI® registered 53.2 percent, an increase of 1.3 percentage points from the October reading of 51.9 percent. The New Orders Index registered 53 percent, an increase of 0.9 percentage point from the October reading of 52.1 percent. The Production Index registered 56 percent, 1.4 percentage points higher than the October reading of 54.6 percent. The Employment Index registered 52.3 percent, a decrease of 0.6 percentage point from the October reading of 52.9 percent. Inventories of raw materials registered 49 percent, an increase of 1.5 percentage points from the October reading of 47.5 percent. The Prices Index registered 54.5 percent in November, the same reading as in October, indicating higher raw materials prices for the ninth consecutive month. Comments from the panel cite increasing demand, some tightness in the labor market and plans to reduce inventory by the end of the year.”

Of the 18 manufacturing industries, 11 are reporting growth in November in the following order: Miscellaneous Manufacturing; Petroleum & Coal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; and Primary Metals. The six industries reporting contraction in November — listed in order — are: Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Furniture & Related Products.

WHAT RESPONDENTS ARE SAYING …
  • “Raw materials have been rather flat. Ramping up for year-end and reducing inventory is main supply chain goal at this time.” (Chemical Products)
  • “Strong manufacturing numbers in anticipation of strong year-end bookings.” (Computer & Electronic Products)
  • “Business is still steady. We are foregoing our shutdown over Christmas break due to an increase in customer orders.” (Plastics & Rubber Products)
  • “Heading into 2017, our business levels look pretty consistent compared to 2016.” (Primary Metals)
  • “Sector remains strong, orders and forecasts are consistent and demand outlook is positive.” (Food, Beverage & Tobacco Products)
  • “New spec buildings going up in our area. Local companies adding additional production space which equates to higher employment.” (Machinery)
  • “Business conditions are good. Labor market is tightening such that it is difficult to staff to completely fulfill production demand.” (Miscellaneous Manufacturing)
  • “We are seeing an upswing in customer Requests for Quotations this month; this is a positive sign for our business.” (Textile Mills)
  • “Continued strong seasonal demand for product.” (Nonmetallic Mineral Products)
  • “2017 is looking to be a very busy year.” (Fabricated Metal Products)
MANUFACTURING AT A GLANCE
November 2016
Index Series
Index
Nov
Series
Index
Oct
Percentage
Point
Change
Direction Rate
of
Change
Trend*
(Months)
PMI® 53.2 51.9 +1.3 Growing Faster 3
New Orders 53.0 52.1 +0.9 Growing Faster 3
Production 56.0 54.6 +1.4 Growing Faster 3
Employment 52.3 52.9 -0.6 Growing Slower 2
Supplier Deliveries 55.7 52.2 +3.5 Slowing Faster 7
Inventories 49.0 47.5 +1.5 Contracting Slower 17
Customers’ Inventories 49.0 49.5 -0.5 Too Low Faster 2
Prices 54.5 54.5 0.0 Increasing Same 9
Backlog of Orders 49.0 45.5 +3.5 Contracting Slower 5
New Export Orders 52.0 52.5 -0.5 Growing Slower 9
Imports 50.5 52.0 -1.5 Growing Slower 2
OVERALL ECONOMY Growing Faster 90
Manufacturing Sector Growing Faster 3

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.

*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price

Aluminum*; Caustic Soda; Copper; Corrugate (2); Corrugated Boxes; Linerboard; Methanol (2); Scrap Steel; Stainless Steel (8); Steel (11); and Steel — Cold Rolled.

Commodities Down in Price

Aluminum* (2); Natural Gas; Plastic Resins; Propylene; and Steel — Hot Rolled (4).

Commodities in Short Supply

None (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price.


NOVEMBER 2016 MANUFACTURING INDEX SUMMARIES


PMI®

Manufacturing expanded in November as the PMI® registered 53.2 percent, an increase of 1.3 percentage points from the October reading of 51.9 percent, indicating growth in manufacturing for the third consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the November PMI® indicates growth for the 90th consecutive month in the overall economy, and indicates growth in the manufacturing sector for the third consecutive month. Holcomb stated, “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through November (51.2 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI® for November (53.2 percent) is annualized, it corresponds to a 3.2 percent increase in real GDP annually.”

THE LAST 12 MONTHS
Month PMI®   Month PMI®
Nov 2016 53.2   May 2016 51.3
Oct 2016 51.9   Apr 2016 50.8
Sep 2016 51.5   Mar 2016 51.8
Aug 2016 49.4   Feb 2016 49.5
Jul 2016 52.6   Jan 2016 48.2
Jun 2016 53.2   Dec 2015 48.0
Average for 12 months – 51.0
High – 53.2
Low – 48.0
New Orders

ISM®’s New Orders Index registered 53 percent in November, which is an increase of 0.9 percentage point when compared to the 52.1 percent reported for October, indicating growth in new orders for the third consecutive month. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The nine industries reporting growth in new orders in November — listed in order — are: Petroleum & Coal Products; Miscellaneous Manufacturing; Textile Mills; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Machinery; and Primary Metals. The nine industries reporting a decrease in new orders during November — listed in order — are: Furniture & Related Products; Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Fabricated Metal Products; Transportation Equipment; and Plastics & Rubber Products.

New
Orders
%
Better
%
Same
%
Worse
Net Index
Nov 2016 27 51 22 +5 53.0
Oct 2016 24 56 20 +4 52.1
Sep 2016 27 53 20 +7 55.1
Aug 2016 22 52 26 -4 49.1
Production

ISM®’s Production Index registered 56 percent in November, which is an increase of 1.4 percentage points when compared to the 54.6 percent reported for October, indicating growth in production for the third consecutive month. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The nine industries reporting growth in production during the month of November — listed in order — are: Miscellaneous Manufacturing; Petroleum & Coal Products; Paper Products; Textile Mills; Fabricated Metal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Chemical Products; and Machinery. The six industries reporting a decrease in production during November — listed in order —are: Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components.

Production %
Better
%
Same
%
Worse
Net Index
Nov 2016 26 57 17 +9 56.0
Oct 2016 25 56 19 +6 54.6
Sep 2016 24 56 20 +4 52.8
Aug 2016 19 59 22 -3 49.6
Employment

ISM®’s Employment Index registered 52.3 percent in November, a decrease of 0.6 percentage point when compared to the October reading of 52.9 percent, indicating growth in employment in November for the second consecutive month. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the seven industries reporting employment growth in November — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Paper Products; Computer & Electronic Products; Primary Metals; and Machinery. The nine industries reporting a decrease in employment in November — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Chemical Products; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

Employment %
Higher
%
Same
%
Lower
Net Index
Nov 2016 15 72 13 +2 52.3
Oct 2016 20 62 18 +2 52.9
Sep 2016 17 63 20 -3 49.7
Aug 2016 16 65 19 -3 48.3
Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in November as the Supplier Deliveries Index registered 55.7 percent, which is 3.5 percentage points higher than the 52.2 percent reported for October. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The nine industries reporting slower supplier deliveries in November — listed in order — are: Miscellaneous Manufacturing; Fabricated Metal Products; Nonmetallic Mineral Products; Chemical Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Transportation Equipment; Computer & Electronic Products; and Machinery. The only industry reporting faster supplier deliveries in November is Paper Products. Eight industries reported no change in supplier deliveries in November compared to October.

Supplier
Deliveries
%
Slower
%
Same
%
Faster
Net Index
Nov 2016 11 86 3 +8 55.7
Oct 2016 8 87 5 +3 52.2
Sep 2016 8 85 7 +1 50.3
Aug 2016 8 86 6 +2 50.9
Inventories*

The Inventories Index registered 49 percent in November, which is an increase of 1.5 percentage points when compared to the 47.5 percent reported for October, indicating raw materials inventories are contracting in November for the 17th consecutive month. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The five industries reporting higher inventories in November are: Furniture & Related Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; and Computer & Electronic Products. The six industries reporting lower inventories in November — listed in order — are: Textile Mills; Machinery; Fabricated Metal Products; Miscellaneous Manufacturing; Transportation Equipment; and Nonmetallic Mineral Products. Seven industries reported no change in raw materials inventories in November compared to October.

Inventories %
Higher
%
Same
%
Lower
Net Index
Nov 2016 15 68 17 -2 49.0
Oct 2016 16 63 21 -5 47.5
Sep 2016 16 67 17 -1 49.5
Aug 2016 18 62 20 -2 49.0
Customers’ Inventories*

ISM®’s Customers’ Inventories Index registered 49 percent in November, which is 0.5 percentage point lower than the 49.5 percent reported in October, indicating that customers’ inventory levels are considered too low in November for the second consecutive month.

The four manufacturing industries reporting customers’ inventories as being too high during the month of November are: Fabricated Metal Products; Transportation Equipment; Primary Metals; and Petroleum & Coal Products. The eight industries reporting customers’ inventories as too low during November — listed in order — are: Textile Mills; Plastics & Rubber Products; Paper Products; Machinery; Chemical Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Computer & Electronic Products.

Customers’
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low
Net Index
Nov 2016 52 15 68 17 -2 49.0
Oct 2016 59 13 73 14 -1 49.5
Sep 2016 58 17 72 11 +6 53.0
Aug 2016 54 16 67 17 -1 49.5
Prices*

The ISM® Prices Index registered 54.5 percent in November, the same reading as reported in October, indicating an increase in raw materials prices for the ninth consecutive month. In November, 21 percent of respondents reported paying higher prices, 12 percent reported paying lower prices, and 67 percent of supply executives reported paying the same prices as in October. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Of the 18 manufacturing industries, the seven industries that reported paying increased prices for its raw materials in November — listed in order — are: Apparel, Leather & Allied Products; Fabricated Metal Products; Nonmetallic Mineral Products; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; and Plastics & Rubber Products. The five industries reporting paying lower prices during the month of November are: Petroleum & Coal Products; Machinery; Transportation Equipment; Computer & Electronic Products; and Electrical Equipment, Appliances & Components. Six industries reported no change in raw materials prices in November compared to October.

Prices %
Higher
%
Same
%
Lower
Net Index
Nov 2016 21 67 12 +9 54.5
Oct 2016 25 59 16 +9 54.5
Sep 2016 20 66 14 +6 53.0
Aug 2016 19 68 13 +6 53.0
Backlog of Orders*

ISM®’s Backlog of Orders Index registered 49 percent in November, an increase of 3.5 percentage points when compared to the October reading of 45.5 percent, indicating contraction in order backlogs for the fifth consecutive month. Of the 87 percent of respondents who reported their backlog of orders, 21 percent reported greater backlogs, 23 percent reported smaller backlogs, and 56 percent reported no change from October.

The seven industries reporting growth in order backlogs in November — listed in order — are: Textile Mills; Nonmetallic Mineral Products; Computer & Electronic Products; Paper Products; Petroleum & Coal Products; Miscellaneous Manufacturing; and Primary Metals. The 11 industries reporting a decrease in order backlogs during November — listed in order — are: Furniture & Related Products; Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Transportation Equipment; Fabricated Metal Products; Chemical Products; Machinery; and Plastics & Rubber Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less
Net Index
Nov 2016 87 21 56 23 -2 49.0
Oct 2016 88 16 59 25 -9 45.5
Sep 2016 87 19 61 20 -1 49.5
Aug 2016 88 18 55 27 -9 45.5
New Export Orders*

ISM®’s New Export Orders Index registered 52 percent in November, a decrease of 0.5 percentage point when compared to the 52.5 percent reported for October, indicating growth in new export orders for the ninth consecutive month.

The six industries reporting growth in new export orders in November — listed in order — are: Miscellaneous Manufacturing; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Machinery. The seven industries reporting a decrease in new export orders during November — listed in order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Paper Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; and Transportation Equipment.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower
Net Index
Nov 2016 82 13 78 9 +4 52.0
Oct 2016 79 12 81 7 +5 52.5
Sep 2016 76 15 74 11 +4 52.0
Aug 2016 78 16 73 11 +5 52.5
Imports*

ISM®’s Imports Index registered 50.5 percent in November, which is 1.5 percentage points below the October reading of 52 percent. This month’s reading indicates growth in imports for the second consecutive month.

The six industries reporting growth in imports during the month of November — listed in order — are: Furniture & Related Products; Computer & Electronic Products; Miscellaneous Manufacturing; Chemical Products; Fabricated Metal Products; and Machinery. The six industries reporting a decrease in imports during November — listed in order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Transportation Equipment.

Imports %
Reporting
%
Higher
%
Same
%
Lower
Net Index
Nov 2016 82 11 79 10 +1 50.5
Oct 2016 81 11 82 7 +4 52.0
Sep 2016 81 12 74 14 -2 49.0
Aug 2016 83 8 78 14 -6 47.0

* The Inventories, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures decreased in November by 3 days to 133 days. Average lead time for Production Materials decreased by 5 days to 59 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies remained the same at 31 days.

Percent Reporting
Capital
Expenditures
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Nov 2016 20 10 12 17 23 18 133
Oct 2016 19 11 10 18 23 19 136
Sep 2016 18 12 9 16 30 15 132
Aug 2016 22 6 13 19 24 16 129
 
Production
Materials
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Nov 2016 17 35 25 14 7 2 59
Oct 2016 12 38 24 16 7 3 64
Sep 2016 15 35 25 16 7 2 60
Aug 2016 15 38 22 15 8 2 60
 
MRO
Supplies
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Nov 2016 40 34 18 7 1 0 31
Oct 2016 41 34 17 7 1 0 31
Sep 2016 38 35 18 9 0 0 31
Aug 2016 40 39 13 8 0 0 29
About This Report

The data presented herein is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. ISM® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

The Manufacturing ISM® Report On Business® is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number for those meeting the criteria for seasonal adjustments (PMI®, New Orders, Production, Employment and Supplier Deliveries) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The PMI® is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries (seasonally adjusted), and Inventories.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI® reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI® above 43.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 43.2 percent, it is generally declining. The distance from 50 percent or 43.2 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM® has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

The Manufacturing ISM® Report On Business® survey is sent out to Manufacturing Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the current month. ISM® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity. ISM® then compiles the report for release on the first business day of the following month.

The industries reporting growth, as indicated in the Manufacturing ISM® Report On Business® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

Responses to Buying Policy reflect the percent reporting the current month’s lead time, the approximate weighted number of days ahead for which commitments are made for Capital Expenditures; Production Materials; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

 

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Metals & Manufacturing Outlook November 2016


 

metals & Manufacturing Outlook Newsletter

Presented by All Metals & Forge Group, the MetalsWatch! newsletter was first published in print in 1988 for All Metals & Forge Group. Its primary focus was to be informative to the metalworking industries in the United States. Its original circulation was 2500 organizations. In 1994 we converted to electronic version only, therefore our first archived edition is dated Dec 1994 . Previous printed issues are not available for archiving. Today, Metals & Manufacturing Outlook™ (formerly MetalsWatch!) has a global circulation of 60,000 subscribers at 50,000 companies from a very diverse group of industries, including Aerospace, Defense, Oil, Chemical, Automotive, Medical, Electronics, Heavy Industry, Shipbuilding, amongst many others. Feel free to read the most current issue below, or Click here to view the back issues in our Library at the bottom of the page. To Subscribe to Metals & Manufacturing Outlook™ and receive future issues, please enter your e-mail address and click on Submit below.

 

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IN THIS ISSUE:

MANUFACTURING OUTLOOK

CREDIT MANAGER’S INDEX

METALS OUTLOOK

AUTOMOTIVE AND AEROSPACE OUTLOOK

AUTOMOTIVE OUTLOOK

AEROSPACE OUTLOOK

ISSUES OUTLOOK

ENERGY OUTLOOK

GLOBAL OUTLOOK

EUROZONE OUTLOOK

ASIA OUTLOOK

SOUTH AMERICA OUTLOOK

GLOBAL BUSINESS SURVEY INSIGHTS

SCATTERGRAM

THE FINAL WORD

PUBLISHER’S STATEMENT

Publisher’s Statement

The Metamorphosis of Manufacturing

Change is constant and manufacturing is the poster child of change in the 21st Century, driven or amplified by advanced robotics, additive manufacturing, horizontal and vertical integration, augmented reality, cloud and cybersecurity, simulation and rapid prototyping, big data and analytics, and the Industrial Internet of Things, or what people are collectively calling Manufacturing 4.0.

With all this change, you may begin to notice the transformation of this publication, Metals & Manufacturing Outlook. In this issue, we have created sections that organize information into broad topic areas. As we solidify this – and make sure it works for the reader, we will be adding some color elements and pictures to balance the look and feel of each page, and help tell the story. And in the not-to-distant future the name will be shortened to Manufacturing Outlook® since the content has morphed beyond its metal roots as MetalsWatch® back in the late 1980’s into an industry-wide publication. In addition, Manufacturing Outlook® will include advertisers at a low charter CPM rate as the periodical becomes an informative resource somewhere between an e-newsletter and an ezine.

We will be abbreviating some content to provide room to expand into feature articles, short stories and timely topical discussions of the rapidly evolving manufacturing sector in the dynamic U.S. economy, which when fully measured accounts for almost 1/3 of U.S. GDP. For those who may still see manufacturing as the dark, dirty and dangerous workplace of the 1900’s, our hope is to write about and show what modern manufacturing looks like in the 21st Century in the feature articles, while presenting the broad brush strokes of industry segments in the “Outlook” sections that include Manufacturing Outlook, Metals Outlook, Automotive and Aerospace Outlook, Issues Outlook, Energy Outlook, and the Global Outlook.

Your feedback will be important during the metamorphosis of Metals & Manufacturing Outlook into the more focused but expanded Manufacturing Outlook®, which will continue to be a monthly newsletter presently sponsored by All Metals & Forge Group. For over 35 years, All Metals & Forge Group has been providing the metals industry with useful information and helpful resources in addition to its superior line of open die forgings and seamless rolled rings. MetalsWatch® was birthed from that emphasis on a forging manufacturer being more than a ‘heat it and hit it’ operation, whereby customers would gain knowledge about those manufacturing processes, the melting ranges of metal, material specifications, alloy reports, metal tidbits, SteelWeights®, SteelLog® – a glossary of 5,000 metallurgical terms, as well as the uses and characteristics of open die forgings and seamless, drawn over mandrel, hand forged or press forged rings.

Part of the driving force for this publication to transform is Manufacturing Talk Radio, the weekly live broadcast across the Internet of information coming from thought leaders and key experts in the manufacturing sector. Change is not only constant but has become so rapid as compared to the evolution in the metals industry, that this publication has to respond to what is happening ‘on the air’.

We hope you will continue to enjoy the information presented herein and share it with your colleagues.

Best Regards,
Lewis A. Weiss
Publisher

   

MANUFACTURING OUTLOOK
THAT WAS THE MONTH THAT WAS, BY WHICH TIME YOU’LL KNOW WHO WON

by Royce Lowe

MFG outlook

What a month it was: first and foremost an election and what we might or might not get from it. By the time you read this it will all be settled, Energy might be what we get from it, something we all need, with ongoing developments in nuclear and oil and gas and others, not forgetting lithium-ion. There’s still Brexit and Tesla and GE, and Alcoa forging aluminum in Russia, and China’s steel companies not really cutting back on production at all. But first…                       

Growth was seen in manufacturing just about everywhere. The U.S. continued in growth mode following its move from contraction in September, and there were significant gains in The Eurozone, China, Japan and India. The Global index soared a little further away from the 50 mark.

In Brexit Land a panel of three judges ruled that it will be up to Parliament to decide whether or not Article 50 can be triggered at the end of March 2017. The pound rose on this news. The ruling will be appealed by the government before the supreme court and that result may not be known until January 2017. Theresa May is adamant she will stick to her timetable and has told the EU so. Brexit will fill even more column inches than the football/soccer Premier League. The longer this goes on the more complicated it will become and the less those who voted Brexit will know about what’s going on, or even why they voted how they voted.

The U.S. economy created 161,000 non-farm jobs in October, which has been described as a ‘solid’ figure. This was less than the 175,000 jobs the economists were calling for, but the unemployment rate eased back to 4.9 percent. August’s figure was revised up from 167,000 jobs to 176,000; September’s from 156,000 to 191,000. Weekly earnings were up by 2.5 percent y-o-y. It’s reported that manufacturing has lost 62,000 jobs this year to date.

Light vehicle sales in the U.S. in October were down almost 6 percent y-o-y, albeit with two fewer selling days than last year.

The ISM PMI figure for U.S. manufacturing continued in growth mode in the month of October, with the PMI reading moving to 51.9, up from September’s 51.5 percent. The overall economy grew for the 89th consecutive month.

IHS Markit

The IHS Markit PMI for the U.S. manufacturing sector jumped to its highest reading for a year in October, up from 51.5 percent in September to 53.4 in October. IHS Markit report a sharp improvement in production and new orders, with jobs added at a modest pace. They further report an increase in inventories of finished goods and raw materials since September. Domestic demand is quoted as strong with a modest growth in new exports.

The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.

The Bureau of Economic Analysis came out with its ‘advance’ estimate for the annual rate of Real GDP growth in the third quarter of 2016, putting it at 2.9 percent. The figure for the second quarter was 1.4 percent.

GALLUP’s U.S. Economic Confidence Index was still running at -12 in late October, with the coincident job creation index remaining at a near-record +32.

World crude steel production for the 66 reporting countries for the month of September 2016 was 132.91Mt, 2.0 percent up y-o-y.

U.S. crude steel production for September 2016 was 6.31Mt, down 3.8 percent y-o-y.

Primary Global Aluminum Production in September 2016 was reported at 4.937 million tonnes, of which 2.751 million tonnes, over 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 426,000      tonnes, North America 325,000 tonnes, Western Europe 310,000 tonnes and Eastern and Central Europe 324,000 tonnes.

Here are the latest figures for US new car and light truck sales for ‘The Big 8’ for October 2016. There were almost across the board negative figures, and car sales were particularly badly hit. The only company to escape unscathed was Hyundai/Kia. Car sales results are shown in parentheses.

The ‘Big Eight’ October ’16 October ’15 YTD % change
General Motors 258584 262933 -1.7 (-14.1)
Ford 187692 213105 -11.9 (-27.5)
Toyota 186295 204045 -8.7 (-17.4)
FCA 173964 193376 -10.0 (-43.6)
Honda 126161 131651 -4.2 (-10.1)
Nissan 113520

 

116047 -2.2 (-13.3)
Hyundai/Kia 111482 110049 +1.3 (unchanged)
VW 24779 30387 -18.5 (-14.3)
Total new cars and light trucks 1372320 1456869

 

-5.8
Total cars 526,462 618,035 -14.8
Total l/trucks 845,858 838,834 +0.8 


THE ECONOMIST magazine,
in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

 

GDP Indl Prodn Cons prices Unemployment
United States +1.4 (qtr) -1.0 (Sept) +1.5 (Sept) 5.0 (Sept)
Canada -1.6 (qtr) -0.7 (July) +1.3 (Sept) 7.0 (Sept)
China +7.4 (qtr) +6.1 (Sept) +1.9 (Sept) 4.0 (Qtr 3)
Japan +0.7 (qtr) +4.5 (Aug) -0.5 (Aug) 3.1 (Aug)
Britain +2.7 (qtr) +0.8 (Aug)

 

+1.0 (Sept) 4.9 (July)
Euro Area +1.2 (qtr) +1.8 (Aug) +0.4 (Aug) 10.1 (Aug)
France -0.4 (qtr) +0.5 (Aug) +0.4 (Sept) 10.5 (Aug)
Germany +1.7 (qtr) +2.0 (Aug) +0.7 (Sept) 6.1 (Sept)
Italy + 0.1 (qtr) +4.1 (Aug) +0.1 (Sept) 11.4 (Aug)
Spain +3.4 (qtr) +6.8 (Aug) +0.2 (Sept) 19.5 (Aug)
India +5.5 (qtr) -0.7 (Aug) +4.3 (Sept) 5.0 (2015)
Brazil – 2.3 (qtr) -5.2 (Aug) +8.5 (Sept) 11.8 (Aug)
Taiwan + 0.2 (qtr) +5.0 (Sept) +0.3 (Sept) 3.9 (Sept)
Mexico – 0.7 (qtr) +0.3 (Aug) +3.0 (Sept)

 

3.9 (Sept)

CREDIT MANAGER’S INDEX

by Royce Lowe

Credit ReportThe news this month is not quite as uplifting as it was last month, but the numbers are still an improvement over what they had been for the last several months. The overall sense of the economy right now is mixed. Most of the indicators are telling the same jumbled story. We see improvements in parts of the Purchasing Managers’ Index and declines in other parts. “Retailers seem to be gearing up for a better season—at least they have been more aggressive as far as hiring,” said NACM Economist Chris Kuehl, Ph.D. “At the same time, consumers have continued to be somewhat reticent. It is a waiting game for many—a desire to see what happens once the dust settles from the election.”

Readings for the combined index were impressive last month, and there has been a bit of return to less exalted readings this month. The combined CMI was at 53.7 in September and is now at 53.5—close to what it has been for the year with the high point coming in April when the reading hit 54.6. The index of favorable factors was at year-long highs in September and has fallen back a little. It was 59.5 and is now 58.4. That is about where the numbers have been all year with two months (March and July) hitting 60.0. The index of unfavorable factors actually improved a little from what it was in September as it went from 49.9 to 50.3. This is certainly not a big change, but it is always significant to move out of the contraction zone.

There was quite a bit of variability within the sub-index readings for both the favorable and unfavorable categories. The sales reading slipped from 57.9 to 56.9. That is a little lower than the average for the year, but still respectable. In the last 12 months, four months had readings under 56.9. The rest have been higher with July sporting a 60.0 mark. The new credit applications index stayed almost the same as last month with a mark of 58.0 as compared with 58.6 in September. The dollar collections reading slipped a little more dramatically as it went from 59.5 to 57.0. The amount of credit extended also stayed about where it had been as it moved from 61.9 to 61.5.

“These are really good numbers and suggest that the best clients are asking for some substantial levels of credit to buy machines and inventory,” Kuehl explained.

 

METALS OUTLOOK

by Royce Lowe

steelforge-energyiStock_000016208139_LargeThe World Steel Association recently released its Short Range Outlook for world steel demand for 2016 and 2017. Overall world demand for finished steel is forecast to increase by 0.2 percent in 2016, and by a further 0.5 percent in 2017 to 1509.6Mt. By major region, NAFTA is forecast to decrease by 0.1 percent in 2016, then to increase by 2.9 percent in 2017 to 137.4Mt. The EU28 is forecast to increase by 0.8 percent in 2016 and by a further 1.4 percent in 2017 to 156.9Mt; and ASIA AND OCEANIA to increase by 0.5 percent in 2016 but to decrease by 0.4 percent in 2017 to 984.3Mt.

Meanwhile, China’s steel mills are producing more than they were a year ago thanks to a property boom, which has seen an increase in crude steel output for the first nine months of 2016 of 0.4 percent y-o-y. China’s investment in real estate and infrastructure was higher than forecast, and the GDP was up 6.7 percent in the third quarter of 2016. Data suggest that apparent steel consumption in China was up 9 percent y-o-y in September and that its steel exports in the first nine months were up 2.4 percent at 85.1Mt, the highest ever. Since heavy duties have been levied against Chinese steel in the west, China has turned to shipping large quantities to Vietnam, Thailand and the Philippines.

The U.S. aluminum industry is not in good shape, and there has been a tendency of late to put the blame at the door of Chinese production. It is reported that U.S. production of aluminum is at its lowest level since 1983. It is also reported that China’s factories are better and lower cost operations. It’s a well-known fact that it takes lots of electricity to remove aluminum form its ore, alumina, and in fact 1/5 to ½ the cost of raw aluminum is electricity.

In 2015, 8 percent of the electricity in North American smelters came from power stations owned by the plants themselves; the figure in China was 85 percent. Chinese producers with captive power pay $0.03 per kilowatt hour, versus $0.075 for power from the grid, according to Bloomberg Intelligence. Most North American smelters use hydroelectric power, whereas China’s are powered by the cheaper coal.

The big problem with U.S. smelters is their technology: the higher current that can be pumped through a smelting electrode, the lower are the energy costs per unit of metal produced. It seems that all U.S. smelters use old technology that runs at less than 300m kiloamperes, versus 23 percent in China. Some two thirds of U.S. smelters are even more antiquated, running on 200KA, versus 4 percent in China.

At least half China’s industry is on the latest technology, 400KA or higher, versus 4 percent elsewhere in the world. This of course does not apply to the whole of China’s aluminum industry, but the available information strongly suggests a technological advantage rather than a ‘commercial’ one. China produces some 55 percent of the world’s primary aluminum, and is intending to even surpass that. It is essential that U.S. smelters beef up their technology to get down their production costs if they are to survive in this critical industry.

And staying with aluminum, AlTi Forge is a joint venture formed by Alcoa and Russia’s VSMPO-Avisma in 2013. The JV has started producing titanium forgings for aircraft parts at Samara, Russia, with all the necessary consents and blessings of the Russian government. It will manufacture large titanium and aluminum forgings for aircraft manufacturers, including landing gear beams and wing pylons. It will further develop forgings in titanium aluminide (TiAl), a highly heat-resistant alloy much lighter than nickel alloys.

Alcoa’s complex in Samara will be part of the spin-off Arconic, which casts aluminum slabs and billets, rolls aluminum sheet and flat-rolled coils and produces extrusions and forgings.

VSMPO-Avisma is an integrated mining and metallurgy group and is the world’s largest producer of titanium ingots and forged products. No details have been announced regarding financial and ownership terms of the JV.

AUTOMOTIVE AND AEROSPACE OUTLOOK

auto-aero

by Royce Lowe

AUTOMOTIVE OUTLOOK
Hot on the heels of GM’s recent settlement with Unifor in Canada, FCA Canada, to avert a strike, has agreed to invest some C$400 million to rebuild an aging paint shop in Brampton, Ontario. And Ford has promised, as part of its labor agreement with Unifor, to invest over $470 million in its Windsor, Ontario engine plant and its Oakville, Ontario assembly plant. Ford has 6,400 auto workers in Canada.

Canada’s automotive output fell to 13 percent of North American production in 2015, from approximately 17 percent in 2009, whereas output in Mexico rose to about 20 percent over the same period. Canada lost over 53,000 automotive jobs between 2001 and 2014.

We’re OK and we know what we’re doing. Thus Ford to Silicon Valley, viz Apple and Google, who are OK when it comes to the software in their ‘future’ cars, but they seem to have forgotten, or never knew, what it takes to actually make a car, about dies and tools and stamping and steel and aluminum and dealing with suppliers for the 30,000 parts in a car. Makes one wonder where Tesla got its know-how.

BUICK, there’s a blast from the past, is the first U.S. model to crack the top three in the Consumer Reports’ reliability rankings, trailing only Toyota’s Lexus and other Toyota marques. Audi and Kia were in there, as was Tesla’s model S.

NISSAN, after threatening/warning that it might decide not to proceed with a couple of new models in the UK, (because of Brexit), has decided to stay and will build new versions of two sporty SUVs in its Sunderland, UK plant, safeguarding 7,000 jobs. The company built one of every three vehicles produced in Britain in 2015.

The UK’s business secretary told the Nissan board, in writing, that the government would ensure Nissan’s operations ‘remain competitive’ after Brexit, prompting some to wonder just what kind of deal Nissan had been offered. It is reported that the government privately advised the auto executives it is confident the sector can retain tariff-free access to the single market. [Ah, the joys of a free press.]

NISSAN is rescuing Mitsubishi – in trouble for improperly quoting fuel economy – with a $2.3 billion stake, to create Renault-Nissan-Mitsubishi, the world’s fourth largest auto group after Toyota, VW and GM. Carlos Ghosn, already chairman of Nissan and Renault SA, will share the role of Nissan CEO for the first time as he takes over Mitsubishi.

SUBARU and its parent Fuji Heavy Industries saw the first Impreza roll off the assembly line at its manufacturing operation in Lafayette, Indiana. Investment in this plant over the past four years is at $1.3 billion, with 1,400 additional workers being hired for the expansion. Production of the Impreza was moved to the U.S. because of increasing demand. The Indiana facility will now produce over 380,000 vehicles per annum, with the company planning a gradual increase to 436,000 units per annum by March 2019.

While FORD recovers from Donald Trump’s venom, GM is quietly making plans to invest $800 million in Mexico. The plans were initially announced in November 2015, and progress has been quietly made since.

A judge has approved VW’s $14.7 billion diesel-cheating settlement. Despite the bad publicity the company has been living through for over a year, it just recorded its biggest 2016 sales gain with September sales up 7.1 percent to 947,600 vehicles. Sales gains in China made up for fewer sales in Europe and Brazil.

TESLA MOTORS made a surprise profit, its first since 2013. It reported a net income of $22 million in the third quarter, versus a $250 million loss in the same period last year. Its revenues jumped to $2.3 billion.

U.S. sales of the model S sedan were up 59 percent over the same quarter in 2015, and the company now sells more than one third of large luxury cars in the U.S., beating out the BMW 7-series and the Mercedes-Benz S class. The luxury SUV new model X sold 5,428 cars for a 6 percent U.S. share in the third quarter, outselling both Porsche and Land Rover, but trailing SUVs from Mercedes, BMW, Cadillac, Volvo, Audi and Lexus.

Meanwhile Tesla cars are now fitted with eight cameras and a dozen or so sensors for 360º visibility and full self-driving capacity. A Los Angeles -to – New York drive, ‘without the need for a single touch,’ is planned by the end of 2017. BMW and Ford are generally ruling out self-driving capacity until after 2020. UBER says a self-driving truck packed with Budweiser made its first delivery in Colorado.

Overall, the question is whether the automotive industry in general and the U.S. automotive industry in particular can sustain record production levels. The answer lies in three pieces: 1) The average age of cars and light truck on the road in America is still around 11 years old, where the average used to be 7 years, 2) Cars and light trucks are being built more soundly, so the average age would likely rise, and 3) The consumer’s desire for ‘new’ over ‘old’ as well as the need for more and more vehicles in an aging population on the one hand, and youthful millennials on the other who may be more urban dwellers who may not see a vehicle as a necessity with the options of Uber or a car rental for longer trips.

We expect to see some cooling off in car and light truck production for 2017, but not dramatically so.

AEROSPACE OUTLOOK
BOEING has a deal to supply 40 jetliners, namely 30 787-9 Dreamliners and 10 777-300ERs to Qatar Airways, a transaction reportedly worth $11.7 billion. A letter of intent has also been signed for supply of 60 737MAX8s, for $6.9 billion.

Boeing has a further order with China Southern for the Dreamliner 787-9 valued at $3.2 billion, with a list price of $271 million each. The airline and its subsidiaries have ordered $15 billion worth of aircraft from Boeing and Airbus in the past year.

The U.S. Government Accountability Office (GAO) has overturned the protest by Boeing and Lockheed Martin regarding the choice of Northrop Grumman Corp’s winning bid to develop and build the U.S. Air Force’s new $80 billion bomber, citing significant structural advantages, in spite of the lower winning bid. The aircraft, to be designated B-21, will be ready in the mid-2020s, and will be a ”durable, stealthy aircraft that can fly deep into enemy territory and launch cruise missiles from safe distances.”

The F-35 needs a further $500 million for development: there has been a further warning from the Pentagon’s chief weapons tester to the effect that the aircraft is ”far from showing it has full combat capability.” The projected cost was $379 billion for a fleet of 2,443 aircraft. The development phase is already up to $55 billion.

Canada’s BOMBARDIER, in trouble with cost overruns and a two-and-a-half year delay on its $6 billion C series aircraft program, is to cut 7,500 more jobs, following the 7,000 job cuts announced in February, 60 percent of which were effected by the end of June. At December 31 2015, Bombardier’s workforce numbered 70,900.

Even before its single-aisle C919 aircraft goes into service, the Commercial Aircraft Corp. of China (Comac) is forming a joint venture with Russia’s United Aircraft Corp. to research and manufacture a twin-aisle jet aimed at the Beijing-New York route. Time to the maiden flight has been set at seven years, with a further three years before the aircraft sees service. The whole is to form serious competition to the Boeing-Airbus duopoly.

ISSUES OUTLOOK

by Royce Lowe and Tim Grady

Deloitte and the U.S. Council on Competitiveness have together compiled a listing of the top ten countries they predict to be the world’s most competitive in manufacturing in the year 2020. In ascending order they are: Singapore; Canada; Taiwan; Mexico; South Korea; India; Japan; Germany; China; The U.S.

The UK Tech Industry says that just under half the founders of UK startups in 2015 came from abroad, according to Balderton, a venture firm. Would-be entrepreneurs could just as easily go to Berlin, Amsterdam or Paris. Investment in European startups fell by a third between June and September 2016.

GE’s plans to acquire German 3-D printing company SLM Solutions Group AG were abandoned following a lack of support from shareholders including billionaire Paul Singer’s Elliott Management Corp. A further bid for Sweden’s Arcam has been upped from 285 to 300 kronors per share.

GE will in no way let its 3-D printing ambitions die, and it is offering to buy a 75 percent stake in Concept Laser GmbH for $599 million.

MFG Talk RadioManufacturing Talk Radio is experiencing more listeners live and downloading the podcasts each month, with over 300,000 downloads over the last 18 months. The show is also facing some positive changes as it consolidates its economic reports to make room for more features stories with manufacturers. While the live show on Tuesday’s at 1:00 p.m. EST will continue, breaking news articles and certain podcasts are posted separate from the live broadcast to stay current with a dynamic industry.

Recent articles include information on soaring solar advances, the slippage of oil, and the Dyson Institute of Technology to train tomorrow’s engineers, the many pros and few cons of TPP as presented by Ken Monahan from NAM, amazing developments in aerospace manufacturing, the continuing importance of Six Sigma and many other topical pieces relevant to everyone in manufacturing, from the C-Suite to the dock door.

A few selected articles will be appearing in future issues of Manufacturing Outlook where the subject matter is more evergreen than breaking news for this monthly newsletter delivered digitally. Visit www.mfgtalkradio.com often for updates. 

ENERGY OUTLOOK

energy outlook

by Royce Lowe

This section is new to Manufacturing Outlook beginning with this issue

The global energy situation is in a state of flux, from climate change and promises to solve it through the dilemmas caused by low oil and gas prices and closure of coal mines, to the present-day emphasis on alternate (clean) sources of power that will light our homes and factories and keep our trucks and automobiles on the road. In this section we will take a look at the countries and companies – both involved in the dilemmas and the solutions – who are grasping the problem and looking for the solutions.

JAPAN, before the Fukushima Dai-Ichi (FD-I) nuclear accident in 2011, generated 25 percent of its electricity from nuclear plants, and the government of the day was hoping to raise this to 50 percent by 2020. Since the disaster this figure is less than 1 percent. Before the disaster Japan had 54 working nuclear reactors. The six at FD-I are to be decommissioned and of the remaining 48 Japan’s new Nuclear Regulatory Authority (NRA) has received applications to restart 26.

The population is generally anti-nuclear, and post-disaster power generation has fallen back into the hands of plants powered by natural gas and coal; not an efficient way to meet Japan’s promised and hoped for reduction in carbon emissions.

The creation of the NRA means many new safety measures have been decreed, involving very high costs. The future of Japan’s nuclear industry is, to say the least, uncertain.

GE’s into wind, having made a $1.65 billion deal with Denmark-based LM Wind Power, a manufacturer of wind-turbine blades, owned by Doughty Hanson. This will increase GE’s ability to serve customers in onshore and offshore wind markets.

GE Renewable Energy is supplying equipment this year for the Block Island Project in Rhode Island, the first offshore wind farm in the U.S.

GE, Endeavour Energy Resources LP and Sage Petroleum Ltd. won approval from Ghanaian lawmakers for construction of the world’s largest liquefied petroleum gas (LPG) fired power plant, together with a 20-year purchase agreement with the nation’s electricity distribution utility. The plant will start producing, in a first phase, 144 megawatts for the Electricity Corporation of Ghana by mid-2017.

GE agreed to combine its oil and gas business with Baker Hughes Inc., creating a company that can offer much towards tackling the present slump in oil prices. GE will have a 62.5 percent stake in the combined provider of oilfield services, which will be publicly traded and have sales in the order of $32 billion. The ‘new Baker Hughes’ will profit from the companies’ combined experience in manufacturing and services, while broadening the use of digital technology, as exemplified by GE’s Predix operating system. Cumulative savings by cost cutting of $1.6 billion are forecast by 2020.

Robert Murray, CEO of Murray Energy Corp. (coal) has called Elon Musk a fraud, claiming that Tesla is being unfairly subsidized.

Royal Dutch Shell, who resumed purchases of Iranian oil in June 2016, has signed a letter of intent with Iran’s National Petroleum Company to ‘explore potential areas of cooperation.’

A Marathon Petroleum unit has sued BP for leaving its former Texas City refinery in shoddy condition and for lying about unfinished repairs and inspections. BP sold the refinery to Marathon in 2012 for less than originally asked. In 2015, 15 workers were killed and hundreds injured at the refinery due to equipment overflowing and igniting a blast. BP allegedly left thousands of critical pressure vessels untested and more than 500 electrical components out of compliance.

Meanwhile BP’s chief economist says that oil demand over the next two decades will likely overwhelm the impact of the electric car on crude markets.

Bloomberg Research suggests that battery-electric vehicles will displace 13 million barrels of oil per day by 2040. BP projects oil demand to increase by about 20 million barrels per day over the next 20 years. [We’ll see!]

If oil makes the vast majority of our cars run today, the electric car depends upon lithium, that very light, very expensive metal that is in no way abundant. Its price has almost tripled in the year to this past June, and China reports a y-o-y increase from $7,000 to $20,000 per tonne.

According to Bloomberg New Energy Finance (BNEF) and McKinsey & Co. the cost of a lithium-ion battery pack for electric cars has in fact fallen by 65 percent since 2010 and will keep falling. Vehicles and the way they are used will change more in the next 20 years than they have in the last hundred.

Cheaper batteries are the driver, and BNEF estimates that battery costs fell to $350 per kilowatt hour in 2015 from $1,000 in 2010. Electric car sales were at 448,000 in 2015 from 52,000 in 2010 and are on track to hit 647,000 this year. But to put this in perspective, present annual global auto sales are in the order of 90 million vehicles.

The cost of lithium-ion batteries, which make up around 40 percent of an electric car’s value, may fall by 16-20 percent with each cumulative doubling of vehicles’ manufacture.

TESLA and its relentless overlord Elon Musk are the driving forces, at least in the U.S., behind the push for generation and use of electrical energy. The cars are one story, the energy that will make them run another.

Tesla, for example, plans to collaborate with Panasonic Corp. to make solar energy components for SolarCity Corp. This is a final push by Elon Musk to merge the automaker and the solar company. Production of photovoltaic cells and modules for solar energy systems used by SolarCity will begin in 2017 at SolarCity’s factory in Buffalo, NY. This whole deal is contingent upon approval of Tesla acquiring SolarCity by the respective shareholders in a vote on November 17. There seem to be many good reasons for Tesla to purchase SolarCity.

Panasonic and Tesla are already ‘related’ in the $5 billion lithium-ion giga-factory in Nevada to produce batteries for the Model 3 electric car and energy storage products for home and utilities.

Elon Musk has one last card up his sleeve. To try to convince shareholders that Tesla must buy SolarCity, he invited hundreds of people to see ‘the roof,’ or many roofs, on an old Hollywood set, an artificial suburban neighborhood. His guests were met by new solar panels that replace shingles and are effectively the roof, rather than a panel that goes on a roof.

The roof tiles on a number of the houses in the neighborhood were made of textured glass, tough as steel – in fact they are quartz – that look like, well, ordinary roof tiles, that allow light to pass through from above onto a standard flat solar cell. It is planned that Panasonic will produce the solar cells and Tesla assemble the glass tiles and accessories.

The future looks like a house topped with solar tiles, where night-time electricity is stored in wall-hung Powerwall batteries, and where a model 3 prototype electric car has easy access to the home’s car charger.

The White House has announced plans to create a 25,000 mile (40,000 km) recharging network for electric cars that it hopes will encourage drivers to switch from gasoline-powered vehicles.

The Department of Transportation will designate 48 official electric vehicle routes on highways that cover 35 of the 50 states, with further building according to demand. Nissan, BME, GM and a number of major power companies will participate in the initiative.

There are currently around 16,000 charging stations across the U.S., up from 500 in 2008; and approximately 150,000 gas stations.

CHINA installed two wind turbines per hour in 2015, and in that same year 500,000 solar panels per day were installed around the world. For the first time ever, solar power capacity tops coal consumption.

CHINA is a country that really needs to up its installation of alternate energy sources. The country has excruciating problems with air and water pollution, due mainly to coal consumption, particularly in power plants and mining operations. In addition to pollution problems arising from coal consumption, the mining of the fuel is in itself dangerous and the cause of many deaths per year in China. But the country is the world leader in the use of alternate forms of energy.

 

GLOBAL OUTLOOK

Global Outlook

by Royce Lowe
EUROZONE OUTLOOK
IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for October, at 53.5 was up from September’s 52.6. There was a broad-based improvement led by the Netherlands and Germany, with growth in production, new orders, new export orders and employment all gathering pace to push the PMI figure to a 33-month high. The Netherlands and Germany were on top, with solid rates of expansion seen also in Austria, Spain and Ireland. France, long in the doldrums, went back into expansion territory with a 31-month high – despite a slight decrease in employment. Italy grew but slower than in September. Only Greece of the ‘big eight’ is in contraction.

In what was a good month for the Eurozone, it saw the sharpest expansion in production since April 2014 and the second-fastest increase in total new orders over the same period. New export business increased for the 40th consecutive month in October, and job creation was quicker than for the past 60 months.

  PMI High/low
Netherlands 55.7 (53.4) 15-month high
Germany 55.0 (54.3) 33-month high
Austria 53.9 (53.5) 4-month high
Spain 53.3 (52.3) 6-month high
Ireland 52.1 (51.3) 4-month high
France 51.8 (49.7) 31-month high
Italy 50.9 (51.0) 2-month low
Greece 48.6 (49.2) 5-month low

New car registrations in Western Europe were down 1.0 percent overall in October, with Germany down 5.6 percent, France down 4 percent, Spain up 4 percent and Italy up 9.8 percent, The UK was up 1.4 percent. There were two fewer selling days than in October 2015.

Crude steel production in Germany in September was at 3.25Mt, down 3.9 percent y-o-y; in Italy 1.99Mt, down 5.3 percent y-o-y; in France 1.28Mt, up 2.2 percent y-o-y and in Spain 1.19Mt, down 8.7 percent y-o-y.

Russia’s crude steel production for September was at 5.74Mt, down 2.1 percent y-o-y; Ukraine’s was 1.88Mt, down 8.0 percent y-o-y.

IHS Markit reports continuing growth in the UK manufacturing economy, but the PMI fell from September’s final 55.5 reading to 54.3 in October. There was growth in production, new orders and employment, with new export orders, aided by a weak Sterling, coming through from the U.S., the EU and China. The SMEs showed the best employment figures.

Higher demand was seen in both the domestic and export markets, with the intermediate goods sector the strongest. The weak Sterling also impacts on costs of raw material and semi-finished goods.

The UK produced 0.644Mt of crude steel in September, up 13.3 percent y-o-y.

ASIA OUTLOOK

There were general signs of improvement in Chinese manufacturing in October, with the Caixin PMI rising to 51.2 in October from 50.1 in September. Production grew at the fastest pace in five-and-a-half years and there was an accompanying growth in new orders, mostly domestic as there was in fact a slight decrease in export orders over the month. Staff cutbacks were at their slowest pace in 17 months.

CHINA produced 68.17Mt of crude steel in September, up 3.9 percent y-o-y; Japan 8.44Mt down 1.5 percent y-o-y; India 7.88Mt, up 8.5 percent y-o-y and South Korea 5.72Mt, up 1.1 percent y-o-y. Taiwan produced 1.77Mt in September, up 10.0 percent y-o-y.

Chinese auto sales jumped 26.14% on year to 2,564,100 in September, says CAAM. In the first nine months of the year automakers in the country delivered 19,360,400 vehicles in total, 13.17% more than a year earlier. The passenger car market expanded 28.94% to 2,268,300 units in Sept., and 14.75% to 16,752,000 units in the first nine months of 2016.

JAPAN’s manufacturing sector saw its PMI increase to its highest level in nine months, from September’s 50.4 to 51.4 in October. New orders, both domestic and export, grew for the first time since January. Employment grew to a two-and-a-half year high and production was up at its sharpest rate in ten months.

There was greater trade with China, Taiwan, Europe and Southeast Asian countries.

The INDIAN manufacturing sector’s PMI was at a 22-month high in October, thanks to strong increases in new orders, purchasing activity and production. October’s PMI was at 54.4, up from September’s 52.1 figure.

Consumer goods producers outperformed intermediate and investment goods producers. Production expanded at its fastest rate for 46 months, new orders at their fastest rate for 22 months.

SOUTH AMERICA OUTLOOK

In Brazil, the manufacturing downturn continues with new export orders falling at their fastest pace since the global financial crisis. There were further sharp decreases in employment. The downturn in new orders softens, but production falls at a quicker pace.

The PMI for October, at 46.3, very slightly up from September’s 46.0 figure, represents the 21st consecutive month of contraction in the Brazilian manufacturing industry.

Brazil’s crude steel production for the month of September was 2.58Mt, a 3.1 percent y-o-y increase.

The JP Morgan Global Manufacturing PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – increased significantly in October to 52.0 from September’s 51.0 reading, the highest reading recorded for two years.

Of the 31 nations for which October data were available, 22 showed improved operating conditions in October, and of the nine showing contractions six were in Asia, with Brazil, Turkey and Greece also showing declines.

All indexes, production, new orders, new export orders and employment were up, as were input and output prices.

 

GLOBAL BUSINESS SURVEY INSIGHTS

global-insights

by Norbert Ore

ECONOMY CHUGGING ALONG FOR NOW OCTOBER 2016

Last month we saw faster growth – albeit slow, persistent economic growth across much of the globe. And we also recognized more positive activity than we’ve seen in any month since March. So last month was a positive by most standards. Now we see October as a large step forward based on global survey data.

While there are still many challenges to global growth, October does provide short term encouragement. In reviewing the data from 21 countries, we find various levels of growth, while notably only Brazil, South Korea, and Greece remain in contraction. Admittedly, two months do not make a trend, but it does illustrate resilience in the global economy.

The Eurozone PMI (53.5, +0.9) rose to its highest level since January 2014. The strong showing was led by Netherlands (55.7, +2.3), Germany (55.0, +0.7), Austria (53.9, +0.4) and Spain (53.3, +1.0).

UK manufacturing has, to this point, not been negatively impacted by BREXIT. This is in spite of strong expectations to the contrary. The UK PMI (54.3, -1.1) reading is also the average for the past three months. It is likely this level of activity can be explained by inventory replenishment and favorable exchange rates and may not be sustainable. However, it is impressive in the short term!

Thanks to a modest improvement during October, China’s Official Report, the CFLP PMI (51.2, +0.8), raised the average for Jan-Oct to 50.1. Both the Official Report and the Caixin China General Manufacturing PMI (51.2, +1.1) rose to their highest level in 28 months.

In North America, Canada (51.1, +0.8) reported growth for the eighth month following a seven-month contraction. Meanwhile, Mexico (51.8 -0.1) recorded its thirty-ninth consecutive month of growth as it continues a stronger trend after posting its lowest level in 33 months in July.

October Scattergram

 

IX. THE FINAL WORD


Manufacturing from a global perspective looks better this month than it has done in a long time. Results from the U.S., Europe and Asia are encouraging.

Ongoing efforts are being made to replace some of the world’s fossil fuels with alternate forms of energy, while information continues to come to light as to how important this is. Much damage has been done to the planet, but we are told by those who know that there is still time to turn the situation around, but only if all concerned can put together a joint effort, and if certain politicians can take their heads out of the sand.

Last Months Issue can be seen HERE

All OTHER ARCHIVE BACK ISSUES
2016

Jan 2016
Feb 2016
March 2016
April 2016
May 2016
June 2016
July 2016
August 2016
September 2016
October 2016

October 2016 Manufacturing ISM® Report On Business®

PMI® at 51.9%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of October 2016.

PMI® at 51.9%

New Orders, Production and Employment Growing
Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in October, and the overall economy grew for the 89th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “The October PMI® registered 51.9 percent, an increase of 0.4 percentage point from the September reading of 51.5 percent. The New Orders Index registered 52.1 percent, a decrease of 3 percentage points from the September reading of 55.1 percent. The Production Index registered 54.6 percent, 1.8 percentage points higher than the September reading of 52.8 percent. The Employment Index registered 52.9 percent, an increase of 3.2 percentage points from the September reading of 49.7 percent. Inventories of raw materials registered 47.5 percent, a decrease of 2 percentage points from the September reading of 49.5 percent. The Prices Index registered 54.5 percent in October, an increase of 1.5 percentage points from the September reading of 53 percent, indicating higher raw materials prices for the eighth consecutive month. Comments from the panel are largely positive citing a favorable economy and steady sales, with some exceptions.”

SPECIAL QUESTION

For inclusion in this report, our panel responded to a special question regarding the Hanjin Shipping Company bankruptcy to gain insights into the impact on their businesses this quarter. The responses were as follows:

  • Not impacted — 51.9%
  • Small, not material impact — 29.7%
  • Material, but manageable impact — 13.4%
  • Large material impact — 0.8%
  • Unsure — 4.2%

Of the 18 manufacturing industries, 10 are reporting growth in October in the following order: Textile Mills; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Computer & Electronic Products; Furniture & Related Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; and Chemical Products. The eight industries reporting contraction in October — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Primary Metals; Plastics & Rubber Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; and Machinery.

WHAT RESPONDENTS ARE SAYING …
  • “Domestic business steady. Export business trending higher.” (Chemical Products)
  • “Very favorable outlook in the market.” (Computer & Electronic Products)
  • “We are looking at a considerable slowdown for October and November. Production is down 20 percent.” (Primary Metals)
  • “Business is much better.” (Fabricated Metal Products)
  • “Strong economy driving steady sales.” (Food, Beverage & Tobacco Products)
  • “Due to the hurricane and other storms, our business is up significantly.” (Machinery)
  • “Ongoing strength seen in 2016 — it’s a good year.” (Miscellaneous Manufacturing)
  • “Customers continue to press price reductions.” (Transportation Equipment)
  • “Our business remains strong.” (Plastics & Rubber Products)
  • “Hard to predict oil price dynamics, but there seems to be a consensus that the market is stabilizing, at least above USD 50 bbl this month.” (Petroleum & Coal Products)
MANUFACTURING AT A GLANCE
October 2016

Index

Series
Index
Oct
Series
Index
Sep
Percentage
Point
Change

Direction

Rate
of
Change
Trend*
(Months)
PMI® 51.9 51.5 +0.4 Growing Faster 2
New Orders 52.1 55.1 -3.0 Growing Slower 2
Production 54.6 52.8 +1.8 Growing Faster 2
Employment 52.9 49.7 +3.2 Growing From Contracting 1
Supplier Deliveries 52.2 50.3 +1.9 Slowing Faster 6
Inventories 47.5 49.5 -2.0 Contracting Faster 16
Customers’ Inventories 49.5 53.0 -3.5 Too Low From Too High 1
Prices 54.5 53.0 +1.5 Increasing Faster 8
Backlog of Orders 45.5 49.5 -4.0 Contracting Faster 4
New Export Orders 52.5 52.0 +0.5 Growing Faster 8
Imports 52.0 49.0 +3.0 Growing From Contracting 1
OVERALL ECONOMY Growing Faster 89
Manufacturing Sector Growing Faster 2

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.

*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price

Corn; Corrugate; Diesel; HDPE (2); Methanol; Nickel; Petroleum (2); Plastic Resins (3); Polyethylene (2); Polypropylene (2); Propylene (3); Stainless Steel* (7); and Steel* (10).

Commodities Down in Price

Aluminum; Carbon Steel; Copper (2); Scrap Steel (3); Stainless Steel*; Steel* (4); Steel — Cold Rolled (3); and Steel — Hot Rolled (3).

Commodities in Short Supply

None.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price.


OCTOBER 2016 MANUFACTURING INDEX SUMMARIES


PMI®

Manufacturing expanded in October as the PMI® registered 51.9 percent, an increase of 0.4 percentage point from the September reading of 51.5 percent, indicating growth in manufacturing for the second consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October PMI® indicates growth for the 89th consecutive month in the overall economy, and indicates growth in the manufacturing sector for the second consecutive month. Holcomb stated, “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through October (51 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI® for October (51.9 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually.”

THE LAST 12 MONTHS
Month PMI® Month PMI®
Oct 2016 51.9 Apr 2016 50.8
Sep 2016 51.5 Mar 2016 51.8
Aug 2016 49.4 Feb 2016 49.5
Jul 2016 52.6 Jan 2016 48.2
Jun 2016 53.2 Dec 2015 48.0
May 2016 51.3 Nov 2015 48.4
Average for 12 months – 50.6
High – 53.2
Low – 48.0
New Orders

ISM®’s New Orders Index registered 52.1 percent in October, which is a decrease of 3 percentage points when compared to the 55.1 percent reported for September, indicating growth in new orders for the second consecutive month. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The eight industries reporting growth in new orders in October — listed in order — are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Petroleum & Coal Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; and Chemical Products. The eight industries reporting a decrease in new orders during October — listed in order — are: Wood Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Primary Metals; and Machinery.

New
Orders
%
Better
%
Same
%
Worse
Net Index
Oct 2016 24 56 20 +4 52.1
Sep 2016 27 53 20 +7 55.1
Aug 2016 22 52 26 -4 49.1
Jul 2016 27 58 15 +12 56.9
Production

ISM®’s Production Index registered 54.6 percent in October, which is an increase of 1.8 percentage points when compared to the 52.8 percent reported for September, indicating growth in production in October for the second consecutive month. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The nine industries reporting growth in production during the month of October — listed in order — are: Textile Mills; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Paper Products; Fabricated Metal Products; Chemical Products; and Computer & Electronic Products. The four industries reporting a decrease in production during October are: Primary Metals; Transportation Equipment; Machinery; and Plastics & Rubber Products.

Production %
Better
%
Same
%
Worse
Net Index
Oct 2016 25 56 19 +6 54.6
Sep 2016 24 56 20 +4 52.8
Aug 2016 19 59 22 -3 49.6
Jul 2016 25 58 17 +8 55.4
Employment

ISM®’s Employment Index registered 52.9 percent in October, an increase of 3.2 percentage points when compared to the September reading of 49.7 percent, indicating growth in employment in October following three consecutive months of contraction. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the 11 industries reporting employment growth in October — listed in order — are: Textile Mills; Printing & Related Support Activities; Miscellaneous Manufacturing; Furniture & Related Products; Paper Products; Electrical Equipment, Appliances & Components; Machinery; Food, Beverage & Tobacco Products; Chemical Products; Nonmetallic Mineral Products; and Primary Metals. The five industries reporting a decrease in employment in October are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Transportation Equipment; and Fabricated Metal Products.

Employment %
Higher
%
Same
%
Lower
Net Index
Oct 2016 20 62 18 +2 52.9
Sep 2016 17 63 20 -3 49.7
Aug 2016 16 65 19 -3 48.3
Jul 2016 17 68 15 +2 49.4
Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in October as the Supplier Deliveries Index registered 52.2 percent, which is 1.9 percentage points higher than the 50.3 percent reported for September. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The seven industries reporting slower supplier deliveries in October — listed in order — are: Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; Machinery; Computer & Electronic Products; and Primary Metals. The four industries reporting faster supplier deliveries in October are: Paper Products; Plastics & Rubber Products; Fabricated Metal Products; and Miscellaneous Manufacturing. Seven industries reported no change in supplier deliveries in October compared to September.

Supplier
Deliveries
%
Slower
%
Same
%
Faster
Net Index
Oct 2016 8 87 5 +3 52.2
Sep 2016 8 85 7 +1 50.3
Aug 2016 8 86 6 +2 50.9
Jul 2016 10 85 5 +5 51.8
Inventories*

The Inventories Index registered 47.5 percent in October, which is a decrease of 2 percentage points when compared to the 49.5 percent reported for September, indicating raw materials inventories are contracting in October for the 16th consecutive month. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The six industries reporting higher inventories in October — listed in order — are: Textile Mills; Nonmetallic Mineral Products; Furniture & Related Products; Computer & Electronic Products; Petroleum & Coal Products; and Miscellaneous Manufacturing. The 10 industries reporting lower inventories in October — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Primary Metals; Machinery; Paper Products; Chemical Products; Fabricated Metal Products; Transportation Equipment; and Printing & Related Support Activities.

Inventories %
Higher
%
Same
%
Lower
Net Index
Oct 2016 16 63 21 -5 47.5
Sep 2016 16 67 17 -1 49.5
Aug 2016 18 62 20 -2 49.0
Jul 2016 19 61 20 -1 49.5
Customers’ Inventories*

ISM®’s Customers’ Inventories Index registered 49.5 percent in October, which is 3.5 percentage points lower than the 53 percent reported in September, indicating that customers’ inventory levels are considered too low in October.

The five manufacturing industries reporting customers’ inventories as being too high during the month of October are: Primary Metals; Fabricated Metal Products; Furniture & Related Products; Chemical Products; and Transportation Equipment. The six industries reporting customers’ inventories as too low during October — listed in order — are: Plastics & Rubber Products; Paper Products; Electrical Equipment, Appliances & Components; Machinery; Miscellaneous Manufacturing; and Computer & Electronic Products. Six industries reported no change in customer inventories in October compared to September.

Customers’
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low
Net Index
Oct 2016 59 13 73 14 -1 49.5
Sep 2016 58 17 72 11 +6 53.0
Aug 2016 54 16 67 17 -1 49.5
Jul 2016 59 13 76 11 +2 51.0
Prices*

The ISM® Prices Index registered 54.5 percent in October, which is 1.5 percentage points higher than reported in September, indicating an increase in raw materials prices for the eighth consecutive month. In October, 25 percent of respondents reported paying higher prices, 16 percent reported paying lower prices, and 59 percent of supply executives reported paying the same prices as in September. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Of the 18 manufacturing industries, the seven industries that reported paying increased prices for its raw materials in October — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Petroleum & Coal Products; Chemical Products; Food, Beverage & Tobacco Products; Paper Products; and Computer & Electronic Products. The eight industries reporting paying lower prices during the month of October — listed in order — are: Textile Mills; Fabricated Metal Products; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Nonmetallic Mineral Products; and Miscellaneous Manufacturing.

Prices %
Higher
%
Same
%
Lower
Net Index
Oct 2016 25 59 16 +9 54.5
Sep 2016 20 66 14 +6 53.0
Aug 2016 19 68 13 +6 53.0
Jul 2016 22 66 12 +10 55.0
Backlog of Orders*

ISM®’s Backlog of Orders Index registered 45.5 percent in October, a decrease of 4 percentage points when compared to the September reading of 49.5 percent, indicating contraction in order backlogs for the fourth consecutive month. Of the 88 percent of respondents who reported their backlog of orders, 16 percent reported greater backlogs, 25 percent reported smaller backlogs, and 59 percent reported no change from September.

The five industries reporting growth in order backlogs in October are: Textile Mills; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Computer & Electronic Products; and Paper Products. The 11 industries reporting a decrease in order backlogs during October — listed in order — are: Wood Products; Primary Metals; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing; Machinery; and Fabricated Metal Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less
Net Index
Oct 2016 88 16 59 25 -9 45.5
Sep 2016 87 19 61 20 -1 49.5
Aug 2016 88 18 55 27 -9 45.5
Jul 2016 86 16 64 20 -4 48.0
New Export Orders*

ISM®’s New Export Orders Index registered 52.5 percent in October, an increase of 0.5 percentage point when compared to the 52 percent reported for September, indicating growth in new export orders for the eighth consecutive month.

The six industries reporting growth in new export orders in October — listed in order — are: Textile Mills; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; and Computer & Electronic Products. The five industries reporting a decrease in new export orders during October are: Wood Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Transportation Equipment; and Machinery. Seven industries reported no change in new export orders in October compared to September.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower
Net Index
Oct 2016 79 12 81 7 +5 52.5
Sep 2016 76 15 74 11 +4 52.0
Aug 2016 78 16 73 11 +5 52.5
Jul 2016 76 14 77 9 +5 52.5
Imports*

ISM®’s Imports Index registered 52 percent in October, which is 3 percentage points above the September reading of 49 percent. This month’s reading indicates growth in imports following two consecutive months of contraction in imports.

The nine industries reporting growth in imports during the month of October — listed in order — are: Miscellaneous Manufacturing; Furniture & Related Products; Fabricated Metal Products; Computer & Electronic Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Nonmetallic Mineral Products. The three industries reporting a decrease in imports during October are: Electrical Equipment, Appliances & Components; Printing & Related Support Activities; and Transportation Equipment.

Imports %
Reporting
%
Higher
%
Same
%
Lower
Net Index
Oct 2016 81 11 82 7 +4 52.0
Sep 2016 81 12 74 14 -2 49.0
Aug 2016 83 8 78 14 -6 47.0
Jul 2016 80 14 76 10 +4 52.0

* The Inventories, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures increased in October by 4 days to 136 days. Average lead time for Production Materials increased by 4 days to 64 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies remained the same at 31 days.

Percent Reporting
Capital
Expenditures
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Oct 2016 19 11 10 18 23 19 136
Sep 2016 18 12 9 16 30 15 132
Aug 2016 22 6 13 19 24 16 129
Jul 2016 20 8 14 18 22 18 132
Production
Materials
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Oct 2016 12 38 24 16 7 3 64
Sep 2016 15 35 25 16 7 2 60
Aug 2016 15 38 22 15 8 2 60
Jul 2016 12 37 26 15 7 3 64
MRO
Supplies
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Oct 2016 41 34 17 7 1 0 31
Sep 2016 38 35 18 9 0 0 31
Aug 2016 40 39 13 8 0 0 29
Jul 2016 38 40 15 5 2 0 31
About This Report

The data presented herein is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. ISM® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

The Manufacturing ISM® Report On Business® is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number for those meeting the criteria for seasonal adjustments (PMI®, New Orders, Production, Employment and Supplier Deliveries) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The PMI® is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries (seasonally adjusted), and Inventories.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI® reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI® above 43.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 43.2 percent, it is generally declining. The distance from 50 percent or 43.2 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM® has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

The Manufacturing ISM® Report On Business® survey is sent out to Manufacturing Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the current month. ISM® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity. ISM® then compiles the report for release on the first business day of the following month.

The industries reporting growth, as indicated in the Manufacturing ISM® Report On Business® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

Responses to Buying Policy reflect the percent reporting the current month’s lead time, the approximate weighted number of days ahead for which commitments are made for Capital Expenditures; Production Materials; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

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About Institute for Supply Management®

Institute for Supply Management® (ISM®) serves supply management professionals in more than 90 countries. Its 48,000 members around the world manage about $1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business®, its highly regarded certification programs and the newly launched ISM Mastery Model. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

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Metals & Manufacturing Outlook October 2016


 

metals & Manufacturing Outlook Newsletter

Presented by All Metals & Forge Group, the MetalsWatch! newsletter was first published in print in 1988 for All Metals & Forge Group. Its primary focus was to be informative to the metalworking industries in the United States. Its original circulation was 2500 organizations. In 1994 we converted to electronic version only, therefore our first archived edition is dated Dec 1994 . Previous printed issues are not available for archiving. Today, Metals & Manufacturing Outlook™ (formerly MetalsWatch!) has a global circulation of 60,000 subscribers at 50,000 companies from a very diverse group of industries, including Aerospace, Defense, Oil, Chemical, Automotive, Medical, Electronics, Heavy Industry, Shipbuilding, amongst many others. Feel free to read the most current issue below, or Click here to view the back issues in our Library at the bottom of the page. To Subscribe to Metals & Manufacturing Outlook™ and receive future issues, please enter your e-mail address and click on Submit below.

 

Subscribe to Metals & MFG Outlook for the latest industry news!

I. Cover Story: THIS WAS AN UP AND DOWN, ROUNDAND ROUND MONTH
II. NORTH AMERICAN PERSPECTIVE
III. EUROZONE
IV. MANUFACTURING TALK RADIO
V. ASIA OUTLOOK
VI. SOUTH AMERICA
VII. FORGING AND CASTING
VIII. BUSINESS SURVEY INSIGHTS
IX. THE SKILLS GAP
X. AUTOMOTIVE
XI. AEROSPACE
XII. THE MANUFACTURING SCENE
XIII. TECHIE CORNER
XIV. OTHER NEW NEWS
XV. THE FINAL WORD

PUBLISHER’S STATEMENT

Publisher’s Statement

Focus – keep your eye on the ball and think longer term.

This presidential election is more debacle than debatable. In fact, it is one of the worst election cycles many of us have lived through. We politely call it mudslinging, but it isn’t mud – same color, but not mud. And it appears the deeper anyone digs in either camp, the more we feel like we are standing somewhere between a cesspool and a failed septic system. So, pardon us if we focus on manufacturing rather than electioneering.

As we trudged our way through September on the heels of a down ISM report from August, we hoped that the drop-off was just manufacturing taking a breather, the wrap up of summer vacations or the gray funk from the election nonsense, and we looked forward to signs of improvement. The pleasant surprise was that we actually got them; albeit, manufacturing still shed several thousand jobs and hiring slowed overall in what the government calls ‘full employment’.

However, according to the ISM, new orders popped upward while backorders moved only slightly higher, meaning there will be a growth in backlog for the moment. The forecast for 2016 GDP inched up to 1.6% according to the NAM, which was the same number from the IMF although they lowered their expectations from 2.2%. While the new order number is good and GDP growth is tepid – month-to-month ISM growth didn’t slide further down from August as September wrapped up. That tends to bolster the notion that 2016 GDP will be a soft year but a positive one.

Now we will begin hearing the pundits talk about upcoming holiday sales – will consumers buy more this year and give the economy a further boost, as they have been each year since The Great Recession, conceding that 2010 was still part of the recovery cycle? Likely so as the real story may be to put things into perspective in dollars.

In 2000, the U.S. GDP was $12,560 billion dollars. By 2007, it had grown to $14,874 billion. In 2008, it dropped to $14,830 billion and to $14,419 by the end of 2009. In 2010 it had recovered to $14,784 billion and by the end of 2015 it stood at $16,397 billion. It isn’t easy to grow the largest economy in the world by 3-4% but even this year-over-year growth has resulted in an overall real GDP that has more than doubled since 1987 when GDP stood at $8,133 billion.

At its highest point in 1987, the DOW stood at 2,477 before the October crash when it hit 1,738.74. Today, the DOW is more than ten-fold that crash number. So as I often tell others, just look in the rearview mirror once in a while to see where we’ve been and how far we’ve come without a 1929-style collapse. And thus, my expectations for 2016 through 2018 or even 2020 are optimistic, even as manufacturing struggles with a transition from dark, dirty and dangerous to digital, dynamic and maybe a little dysfunctional as IIoT, Big Data, Cybersecurity and globalization seep further in.

Enjoy the following upbeat news and take a breather yourself from the election fodder to evaluate manufacturing in America in a broader and more retrospective light. It isn’t awful; a bit slow, but not hurdling toward the edge of a cliff. It may not boom upward but growth over the next 5 years appears to be fair to midling (often pronounce ‘midlin’ when we drop the ‘g’ to ‘fair to midlin’). It means it’s okay.

Best Regards,
Lewis A. Weiss
Publisher

   

I. THIS WAS AN UP AND DOWN, ROUND AND ROUND MONTH

by Royce Lowe

np directionISM PMI comes back up again from 49.4 to 51.5.

Brexit-bound Britain, due to start exit proceedings next March; sees its September manufacturing performance reach new recent highs.

 U.S. car and light truck sales drop slightly, 0.5 percent y-o-y, Canada’s light vehicle sales drop similarly, 0.5 percent y-o-y and Western Europe car sales increase 6.6 percent y-o-y. China’s increase is over 20 percent.

From September 2017, car manufacturers will submit vehicles for on-road testing as well as in laboratories. This will force adoption of more effective anti-pollution systems.

Boeing and Airbus will supply aircraft to Iran. See Aerospace for details.

 The U.S. economy created 156,000 non-farm jobs in September, which has been described as a ‘solid’ figure. This was less than the 170,000 jobs the economists were calling for, and the unemployment rate rose very slightly to 5.0 percent from the 4.9 percent figure that had been in place since spring. Wage gains over the past 12 months moved to a figure of 2.6 percent. However, manufacturing continued to shed jobs at over 40,000 for 2016.

The ISM PMI figure for U.S. manufacturing turned right around in the month of September, moving back into growth mode with a reading of 51.5 up from August’s 49.4 percent. The overall economy grew for the 88th consecutive month. See North American Perspective for details.

 The IHS Markit PMI for the U.S. manufacturing sector eased back to 51.5 percent in September, a 3-month low, from August’s 52.0 reading. IHS Markit state that ‘manufacturing growth slows amid weakest upturn in new orders for nine months’ with production and new orders expanding at a slower pace. There was a generally subdued client demand and a drop in export sales for the first time in four months.

Manufacturers were looking to bring their inventories into line, and along with this the rate of job creation picked up from August’s low. It is said that new business is being affected by delays in pre-election decision making.

There was a slight increase in backlogs of work.

The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.

 The Bureau of Economic Analysis came out with its ‘third’ estimate for the annual rate of Real GDP growth in the second quarter of 2016, putting it at 1.4 percent. The figure for the first quarter was 0.8 percent.

GALLUP’s U.S. Economic Confidence Index was at -12 in early October, with the coincident job creation index remaining at a record +33.

 World crude steel production for the 66 reporting countries for the month of August 2016 was 134.13Mt, 1.9 percent up y-o-y.

 U.S. crude steel production, for August 2016 was 6.70Mt, down 3.4 percent y-o-y.

 Primary Global Aluminum Production in August 2016 was reported at 4.944 million tonnes, of which 2.713 million tonnes, over 54 percent, was produced in China. The Gulf Corporation Council (GCC) produced 438,000 tonnes, North America 335,000 tonnes, Western Europe 317,000 tonnes and Eastern and Central Europe 334,000 tonnes.

 The American Aluminum Association is now asking the U.S. government to          do something about Chinese aluminum, since if the price goes down much          lower it may put an end to the U.S. aluminum industry.

Here are the latest figures for US new car and light truck sales for ‘The Big Eight’for September 2016.

The ‘Big Eight’ September ’16 September ’15 YTD % change
General Motors 249777 251310 -0.6
Ford 203444 221269 -8.1
Toyota 197260 194399 1.5
FCA 189929 189567 0.2
Honda 133655 133750 -0.1
Nissan

127797

 

121782 4.9
Hyundai/Kia 115830 113835 1.7
VW 24112 26141 -7.8
Total new   cars and light trucks 1435689

1442467

 

-0.5

 Total cars               575,114                619,112                -7.1

Total l/trucks         860,575                823,355                4.5

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

  GDP Indl Prodn Cons prices Unemployt
United States +1.1 (qtr) -1.1 (Aug) +1.1 (Aug) 4.9 (Aug)
Canada -1.6 (qtr) -1.3 (June) +1.1 (Aug) 7.0 (Aug)
China +7.4 (qtr) +6.3 (Aug) +1.3 (Aug) 4.1 (Qtr 2)
Japan +0.7 (qtr) -4.2 (July) -0.5 (July) 3.0 (July)
Britain +2.4 (qtr)

+2.1 (July)

 

+0.6 (Aug) 4.9 (June)
Euro Area +1.2 (qtr) -0.5 (July) +0.2 (Aug) 10.1 (July)
France -0.4 (qtr) -0.1 (July) +0.2 (Aug) 10.3 (July)
Germany +1.7 (qtr) -1.2 (July) +0.4 (Aug) 6.1 (Aug)
Italy + 0.1 (qtr) -0.3 (July) -0.1 (Aug) 11.4 (July)
Spain +3.4 (qtr) -5.2 (July) -0.1 (Aug) 19.6 (July)
India +5.5 (qtr) -2.4 (July) +5.0 (Aug) 5.0 (2015)
Brazil – 2.3 (qtr) -6.6 (July) +9.0 (Aug) 11.6 (July)
Taiwan + 0.2 (qtr) +7.7 (Aug) +0.6 (Aug) 4.0 (Aug)
Mexico – 0.7 (qtr) +1.0 (July)

+2.7 (Aug)

 

3.7 (Aug)

II. NORTH AMERICAN PERSPECTIVE

by Royce Lowe

North AmericaThe Institute of Supply Management PMI figure registered 51.5 percent in September, up 2.1 percentage points from August’s 49.4 reading, representing a return to growth in manufacturing following a month of contraction. There was growth in the overall economy for the 88th consecutive month, which is now the 4th longest expansion is U.S. history, exceeding the Nov. 2001 to Dec. 2007 expansion of 73 months, and just behind the Dec. 1982 to July 1990 expansion of 92 months.

 Seven of the eighteen manufacturing industries are reporting growth in September in the following order: Nonmetallic Mineral Products; Furniture & Related Products; Textile Mills; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; and Paper Products. Eleven industries reported contraction in September, namely, listed in order: Printing & Related Support Activities; Petroleum & Coal Products; Wood Products; Apparel, Leather & Allied Products; Transportation Equipment; Machinery; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Chemical Products; and Electrical Equipment, Appliances & Components.

There were a number of good, positive comments from Chemical Products; Computer & Electronic Products; Primary Metals; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; Furniture & Related Products and Plastics & Rubber Products. There was a concern from Transportation Equipment regarding the Hanjin Shipping bankruptcy as it involved lost time tracking containers. There is further concern about the capacity and ocean rates in the near to medium-term future. Petroleum & Coal Products say oil prices are still an issue.

The following 5 components of the ISM’s PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories are equally weighted and used to calculate the PMI number. A monthly PMI over 50.0 indicates an expanding economy; a number over 60.0 indicates strong manufacturing output, although overheating may occur.

ISM PMIThe New Orders Index was at 55.1 percent in September or six percentage points up on August’s 49.1 figure, representing growth in new orders after one month of contraction. Growth was noted in nine industries in September, including Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Computer & Electronic Products; Fabricated Metal Products; Paper Products; and Machinery. Six industries reported a decrease in new orders during September, including Transportation Equipment; Electrical Equipment, Appliances & Components; Chemical Products; and Textile Mills.

 The Production Index also went back into growth territory in September at 52.8 percent, representing a 3.2 percentage points increase on August’s 49.6 reading and a return to growth following one month in contraction. Growth was   noted in 10 industries during the month of September including Nonmetallic Mineral Products; Primary Metals; Petroleum & Coal Products; Plastics & Rubber Products; Chemical Products; and Paper Products. The eight industries reporting a decrease in production during September include Wood Products; Apparel, Leather & Allied Products; Printing & Related Support Activities; Machinery; Fabricated Metal Products and Transportation Equipment.

 Employment increased 1.4 percentage points in September to 49.7 from August’s 48.3 reading, representing contraction in employment for the third consecutive month. Seven of the 18 manufacturing industries reported employment growth in September, including Textile Mills; Electrical Equipment, Appliances & Components; Furniture & Related Products; Paper Products; and Computer & Electronic Products. The eight industries reporting a decrease in employment in September include : Transportation Equipment; Primary Metals; Fabricated Metal Products; Chemical Products and Machinery.

 The delivery performance of suppliers to manufacturers was slower in September as the index registered 50.3 percent, or 0.6 percentage points lower than August’s 50.9 reading. Seven industries reported slower supplier deliveries in September, including Nonmetallic Mineral Products; Machinery; Food, Beverage & Tobacco Products; Chemical Products; and Primary Metals. The four industries reporting faster supplier deliveries in September are: Petroleum & Coal Products; Fabricated Metal Products; Plastics & Rubber Products; and Computer & Electronic Products. Seven industries reported no change in supplier deliveries in September compared to August.

Raw Materials Inventories contracted for the 15th consecutive month in September as the Inventories Index increased slightly to 49.5 percent from August’s 49.0 reading. Eight industries reported higher inventories in September, including Apparel, Leather & Allied Products; Fabricated Metal Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Chemical Products. The nine industries reporting lower inventories in September include Wood Products; Machinery; Primary Metals; Plastics & Rubber Products; Paper Products and Petroleum & Coal Products.

The following 5 components of the ISM’s PMI, Customer Inventories, Prices, Backlog of Orders, Exports and Imports are not used to calculate the PMI number but are tracked for trends in the marketplace

The ISM Customers’ Inventories Index registered 53.0 percent in September or 3.5 percentage points above August’s 49.5 reading, meaning that customers’ inventories are considered to be too high in September. The eight manufacturing industries reporting customers’ inventories as being too high during the month of September include Plastics & Rubber Products; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; and Fabricated Metal Products. The three industries reporting customers’ inventories as too low during September are: Printing & Related Support Activities; Paper Products; and Electrical Equipment, Appliances & Components. Six industries reported no change in customer inventories in September compared to August.

 The ISM Prices Index registered 53.0 percent in September, unchanged from August’s reading, indicating an increase in raw material prices for the seventh consecutive month. In September 20 percent of respondents reported paying higher prices, 14 percent lower and 66 percent the same prices as in August. Of the 18 manufacturing industries, the 10 industries that reported paying increased prices for their raw materials in September include Plastics & Rubber Products; Nonmetallic Mineral Products; Paper Products; Chemical Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The four industries reporting paying lower prices during the month of September are: Primary Metals; Electrical Equipment, Appliances & Components; Fabricated Metal Products; and Computer & Electronic Products.

Up in Price in September were:

Caustic Soda (2); Garlic — Dehydrated; HDPE; Petroleum; Plastic Resins    (2); Polyethylene; Polypropylene; Propylene (2); Stainless Steel (6); Steel* (9); and Titanium Dioxide (2).

Commodities Down in Price:

Copper; Corn (3); Electric Components; Scrap Steel (2); Steel* (3); Steel — Cold Rolled (2); and Steel — Hot Rolled (2).

Commodities in short supply:

Electronic Components.

Note: The number of consecutive months the commodity is listed is indicated  after each item.

*Reported as both up and down in price.

The ISM Backlog of Orders Index was at 49.5 percent in September, 4.0 percentage points up on the August reading of 45.5 percent, indicating contraction in order backlogs for the third consecutive month. Of the 87 percent of respondents who measured their backlogs, 19 percent reported greater backlogs, 20 percent smaller backlogs and 61 percent no change from August.

The seven industries reporting growth in order backlogs in September include Petroleum & Coal Products; Plastics & Rubber Products; Computer & Electronic Products; Machinery; and Chemical Products. The eight industries reporting a decrease in order backlogs during September include Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Transportation Equipment; Primary Metals; Food, Beverage & Tobacco Products; and Paper Products.

The ISM New Export Orders Index was at 52.0 percent for September, 0.5 percentage points down on August’s reading, and representing growth in new export orders for the seventh consecutive month. The seven industries reporting growth in new export orders in are Wood Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; and Computer & Electronic Products. The seven industries reporting a decrease in new export orders during September are Apparel, Leather & Allied Products; Furniture & Related Products; Printing & Related Support Activities; Primary Metals; Nonmetallic Mineral Products; Machinery; and Plastics & Rubber Products.

The ISM Imports Index is at 49.0 percent in September, two percentage points above August’s reading of 47.0 percent, representing contraction in imports for the second consecutive month. The four industries reporting growth in imports during the month of September are Computer & Electronic Products; Furniture & Related Products; Transportation Equipment; and Fabricated Metal Products. The 10 industries reporting a decrease in imports during September include Primary Metals; Miscellaneous Manufacturing; Paper Products; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; and Chemical Products. 

CANADA’S IHS Markit Manufacturing PMI decreased to 50.3 in September from August’s 51.1 reading, with production effectively stagnant, new orders down for the first time since February and a slight drop in employment in September. Manufacturing production growth was largely confined to Alberta, B.C. And Quebec, with Ontario recording a drop in production for the first time in just over three years.

Export sales fell across the country, but Western Canada showed its first growth in new orders since January 2015.

Canada produced 1.10 Mt of crude steel in August, down 1.6 percent y-o-y. Canada’s light vehicle sales were off 0.5 percent y-o-y at 173,460 units in September, dragged down mostly by poor results for a third consecutive month by FCA Canada. Sales for the first nine months of 2016 were up 3.2 percent y-o-y at 1,507,975 units.

MEXICO’s PMI increased from August’s 50.9 to 51.9 percent in September. The month saw the best performance in new orders, production and employment in four months. Export sales were also up. Mexico produced 1.69Mt of crude steel in August, 1.9 percent up y-o-y.

 

III. EUROZONE

by Royce Lowe

IHSIHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for September, at 52.6 was up from August’s 51.7 amid improved production, new orders – both domestic and export – and employment. Job creation was registered for the 25th consecutive month and there was further backlog accumulation. Germany and Austria showed the fastest growth, with Italy returning to expansion and France nearer to stabilization.

There are signs of improving demand from both European and export clients. The PMI has grown for 38 consecutive months.    

  PMI High/low
Germany 54.3 (53.6) 3-month high
Austria 53.5 (52.1) 3-month high
Netherlands 53.4 (53.5) 2-month high
Spain 52.3 (51.0) 5-month high
Ireland 51.3 (51.7) 2-month low
Italy 51.0 (49.8) 2-month high
France 49.7 (48.3) 7-month high
Greece 49.2 (50.4) 2-month low

Car sales in Western Europe were up 6.6 percent in September, with a record September in the UK, and total passenger car registrations, including the UK, of 1.4 million units. Increases were seen in Germany, 9.4 percent; Italy, 17 percent; Spain, 14 percent; and France, 2.5 percent.

Crude steel production in Germany in August was at 3.51Mt, up 2.4 percent y-o-y; in Italy 1.08Mt, up 7.4 percent y-o-y; in France 0.98Mt, down 5.2 percent y-o-y and in Spain 1.04Mt, down 11.8 percent y-o-y.

Russia’s crude steel production for August was at 5.92Mt, down 1.9 percent y-o-y; Ukraine’s was 1.84Mt, down 4.1 percent y-o-y.

IHS Markit reports a further strengthening in the UK manufacturing PMI from August’s 53.4 to a 27-month high of 55.4.

 There was growth in production, new orders and employment, with new export orders rising at the fastest pace since January 2014. Demand was good from both domestic and export, and growth in consumer products was best for one-and-a-half years, for intermediate for 11 months and for investment for 8 months. It is thought the UK manufacturing growth was triggered by a weak Sterling.

The UK produced 0.582Mt of crude steel in August, down 37.5 percent y-o-y.

IV. MANUFACTURING TALK RADIO

by Tim Grady

hostsEach month, listeners download previous podcasts nearly 20,000 times from mfgtalkradio.com at their convenience to catch up on pieces of information in those discussions with industry professionals and thought leaders. This was one of the objectives of Manufacturing Talk Radio – to build an evergreen reference library of useful information for listeners.

The original advertisements broadcast within those shows remains in place, and some new ad content is occasionally added. Each new broadcast is released on Tuesday at 1:00 p.m. in either a live and lively discussion or pre-recorded segments to capture the thinking of our guests “as catch can” during their busy schedule across time zones and their travels.

Recently added on the third Tuesday of each month is the Global Outlook, presented by Chad Moutray, Chief Economist from NAM, along with MFG Talk Radio’s senior international correspondents, Chong Wang covering China, Royce Lowe discussing the EU and UK, and Norbert Ore reviewing the 18 Purchasing Managers Indices from Manufacturing that he follows from countries around the world.

If you are looking for powerful economic overviews, trending information, new manufacturing developments and breaking industry news, go to mfgtalkradio.com to hear from association experts, industry professionals, local and national politicians, and academic educators focusing on manufacturing.

V. ASIA OUTLOOK

by Royce Lowe

ChinaCHINA produced 68.6Mt of crude steel in August, up 3.0 percent y-o-y; Japan 8.91Mt up 1.5 percent y-o-y; India 8.14Mt, up 9.4 percent y-o-y and South Korea 5.87Mt, up 1.8 percent y-o-y. Taiwan produced 1.89Mt in August, up 10.7 percent y-o-y.

 The Caixin China manufacturing PMI increased very slightly from August’s 50.0 to 50.1 in September, as a result of a slight expansion in production and total new orders. The export business was stable in September, ending nine months of reduction. Cost-cutting measures in the industry led to a reduction in employment.

Figures from the Chinese Association of Automobile Manufacturers (CAAM) say that total light vehicle sales were up 24.2 percent y-o-y at 2,071,000 units.

JAPAN’s manufacturing PMI increased from August’s 49.5 to 50.4 in September, with conditions in the industry showing a marginal improvement for the first time since February. Production was up for the second consecutive month, with new orders off at a slower pace. New export orders were up for the first time in eight months, and there was a slight improvement in employment.

Consumer and intermediate goods producers reported increases and there was greater trade with China, Taiwan and Europe.

Japan saw a 3 percent y-o-y increase in car sales in August, with 2016-to-date car sales falling 4.1 percent y-o-y – with a big drop of 14 percent y-o-y in mini-class vehicles.

The INDIAN manufacturing sector’s PMI eased back slightly from its 13-month high of 52.6 in August, to 52.1 in September. There was slightly less growth momentum than in August, but improvement in manufacturing continued for the ninth consecutive month, with expansion in new orders and production and the best export performance since July 2015. There were reports from India of increases in steel prices.

 

VI. SOUTH AMERICA

by Royce Lowe

South America In Brazil, the manufacturing downturn continues with drops in production, new orders and employment. New export business is down at the quickest pace since 2009.

 The PMI for September, at 46.0, very slightly up from August’s 45.7 figure, represents the 20th consecutive month of contraction in the Brazilian manufacturing industry. Industrial production is down and inflation and unemployment seem to be out of control.

No light has been spotted at the end of any tunnel.

Brazil’s crude steel production for the month of July was 2.77Mt, a 1.1 percent y-o-y decrease.   

 The JP Morgan Global Manufacturing PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – increased slightly in September to 51.0 from August’s 50.8 reading.

 There was a moderate rate of expansion in September, with a good performance in consumer and intermediate goods, and a slight contraction in investment goods. The U.S. PMI was in fact at a three-month low; (note…this is IHS Markit figure) there were slight increases in China and Japan but continuing downturns in France, South Korea, Turkey, Malaysia, Thailand, Myanmar and Brazil.

Europe was slightly brighter with a solid improvement in Germany, Austria and the Netherlands. The UK was at a 27-month high, with growth also up in the Czech Republic, Poland and Russia.

September saw global employment up for the second time in the past three months. Employment was up in the U.S., the Eurozone, Japan, UK, Taiwan, India, Indonesia, Vietnam, Malaysia, Philippines, Poland and Czech Republic. There were employment losses in China, South Korea, France, Brazil, Canada, Thailand, Russia, Ireland and Myanmar.

In conclusion, the global manufacturing sector remained in low growth mode at the end of the third quarter, although there has been an improvement in recent months. Based on the global PMI it appears that global output growth is firming modestly from a 1 percent pace to a 2 percent pace.

 

VII. FORGING AND CASTING

by Royce Lowe

DanaDrivetrain manufacturer Dana Incorporated plans a new plant in Gyõr, Hungary, to produce gears for European vehicle manufacturing. The new, ‘state-of-the-art’ plant, would cover 140,000 sq.ft. and is budgeted at $51 million. Construction would start in early 2017, and manufacturing would begin in 2020, with about 200 employees.

Dana already operates three plants in Gyõr and this new project will benefit from a non-refundable cash grant from the Hungarian Investment promotion Agency.

EJ —the group that produces and distributes municipal and infrastructural castings in North America, Europe, and Australia — is laying plans to relocate from its original location in East Jordan, MI, to a new foundry at a greenfield site. The project is in its very early stages and is not final. It is pending final approval from local and state officials. The intention is to build on a site in Warner Township, MI, within 20 miles of its current location, with manufacturing at the new plant to begin in 2019.

The foundry has been operating for 133 years, and none of the 350 jobs at the present location are said to be at risk.

Long known as East Jordan Iron Works, EJ renamed its organization in 2011, establishing a global brand for products it manufactures at foundries in Australia, Canada, France, and Ireland. It has a second U.S. plant in Ardmore, OK.

Fritz Winter, a group based in Germany, has started construction on a $200 million project in Franklin KY. This is the first time the company has established a production facility outside Germany. The site was selected because it is near customers, skilled workers and site infrastructure.

Fritz Weaver produces almost 800 cast iron parts for automotive and commercial vehicle brakes, chassis and motors, and hydraulic systems, in gray, ductile and compressed graphite iron. Components will be supplied as rough castings, pre-machined or fully-machined parts.

The Kentucky operation will produce around 60,000 tonnes per year and will employ over 200 workers when operations start in 2017, with this number increasing to 340 workers with a full, five-year development.

VIII. GLOBAL ECONOMIES PROVE RESILIENT

by Norbert Ore

SEPTEMBER 2016 BUSINESS SURVEY INSIGHTS

Recent months have featured mixed results as the various PMIs have bounced around the mid-point of the scattergram. This month, the survey data presents an interesting mosaic of the major global economies. The trend of slow, persistent economic growth continues, but we see, at least for this month, more positives than any month since March.

While global economies are still considered to be underperforming, September is encouraging as 15 of the 18 (13 in August) surveys that we follow are above the mid-point; only Australia, South Korea and Brazil failed to grow. Even more encouraging – 12 of the 15 were both expanding and strengthening. Can this continue? Doubtful! We would judge it to be more coincidence than a new trend.

In spite of the continuing trepidation with regards to BREXIT, the UK (55.4, +1.9) gained momentum in September posting its best reading since mid-2014. It is likely this level of activity can be explained by inventory replenishment and/or favorable exchange rates.

China’s Official Report, the CFLP PMI (50.4, unch), has averaged 49.9 for the first nine months of the year. The Caixin China General Manufacturing PMI (50.1, +0.1) fell to the mid-point and has averaged 49.3 for the first nine months. Manufacturing in China has shown little change since we began tracking both surveys in 2012.

In North America, Canada (50.3, -0.8) reported growth for the seventh month following a seven-month contraction. Meanwhile, Mexico (51.9 +1.0) recorded its thirty-eighth consecutive month of growth as it continues to recover after posting its lowest level in 33 months in July.

Scattergram

IX. THE SKILLS GAP, EMPLOYMENT, AND ASSOCIATED

by Royce Lowe

Engineer Teaching Apprentice PwC (Price Waterhouse) is having its say on the talent (shortage) issue by offering suggestions as to how to develop a competitive industrial workforce. Although around one third of manufacturing companies say they have no or only a little difficulty in finding suitable employees, the number of job openings is still higher than the number of hires, pointing again to the fact that here is a problem to be addressed. 

PwC suggests workplace training, community colleges, recruitment of STEM (Science, Technology, Engineering and Math) graduates directly, hiring outside the industry, apprenticeships and the hiring of talent from outside the U.S., although this would mean the U.S. would need to raise the number of visas for skilled, non-U.S. Workers.

Meanwhile the majority of U.S. higher education admission directors say they are losing potential applicants because of applicants’ concerns about accumulation of student loan debt. At public colleges 51 percent say they are losing potential applicants, but the figure rises to 87 percent for private colleges.

X. AUTOMOTIVE

by Royce Lowe

automotive mfgFord hit back at Trump, as CEO Mark Fields says he’s ‘disappointed’ by DT’s accusations – when politics gets in the way of facts. Ford is moving the slow-selling Focus and C-Max Hybrid to Mexico and replacing them, in the Michigan factory with two new products which ‘those in the know’ say are the Ranger compact pickup and a revived Bronco SUV.

Meanwhile a Tesla hit a tree somewhere – does it really matter where – at 155kph/96mph -with the auto pilot not on, and there was a crash on an Autobahn in Germany where the driver claimed to have activated the autopilot system. Tesla looks like being on track to reach its target shipment of 80,000 vehicles for 2016.

GM says its Bolt EV will travel 238 miles (383 kms) on a charge, beating earlier estimates, and that after a $7,500 federal tax credit the car will sell for $30,000. 

Three Austrian brothers, the Kreisels, are coming hot on Tesla’s heels. Kreisler Electric GmbH, says that companies that include BMW, McLaren Automotive Ltd and VW are looking to them to get away from fossil fuels and join the EV revolution. They work out of a three-door garage and are making battery packs and electric drivetrains for a new generation of plug-in cars, boats and airplanes. The brothers have so far designed lithium-battery production lines for OEMs and have created prototypes for top-tier carmakers. 

VWVW is, not surprisingly, still getting an awful lot of press coverage, some of the latest being about its hounding by the U.S. Justice Department, who are also investigating Deutsche Bank AG. The two German companies account for 320,000 jobs. VW, with a net liquidity of just over $32 billion, has already agreed to pay $16.5 billion in civil litigation fines in the U.S., but this is not the end as there are civil claims from several states and $9.2 billion in lawsuits in Germany. And the whole darned Dieselgate thing is spreading to the Group’s real cash cow, Audi. In spite of all this, VW maintains it will end up being the numero uno in the electric vehicle business.

Canada hits the automotive news this month with word that as part of a settlement with Unifor, GM will invest handsomely in the assembly plant in Oshawa, an engine and transmission plant in St. Catharines and a parts depot in Woodstock, all in the province of Ontario. Some engine production will be moved from Mexico to St. Catharines, and hundreds of millions will be invested in Oshawa. The Canadian Government says it will match GM’s investment with tax dollars. 

Hyundai, recently ranked number three for quality in the J.D. Power survey, says the U.S. is a key export market destination for its Kia Motors plant in Pesqueria, Mexico. Kia was recently voted number one in the J.D. Power survey. The plant has been producing since May 2016, will have 14,000 employees by the end of 2017, and will produce 300,000 units per annum when wound up to a three-shift operation. The plant will max at 400,000 units per annum, raising Kia’s global capacity to 3.56 million units per annum.

This plant will augment production at the Kia plant in West Point GA and the Hyundai plant in Montgomery, AL.

XI. AEROSPACE

by Royce Lowe

BoeingUnder the terms of a license granted by an obscure U.S. Treasury Department bureau, both Boeing and Airbus will supply aircraft to Iran Air.

Boeing will supply up to 109 jetliners, 747s, 777s and 777Xs; an order for 80 aircraft for $17.6 billion plus a further 29 via leasing companies. Airbus has a $27 billion order for 118 jetliners with licenses issued for the first 17.

Congressional opponents have vowed to block the exports. What if the next U.S. President decides to reinstate sanctions?

Boeing’s crystal ball sees a demand for 6,810 new aircraft in China over the next 20 years, worth $1.025 trillion, on the back of an annual 6.4 percent increase in passenger traffic in the next 20 years. Worldwide demand over the next 20 years is estimated at 39,620 new aircraft worth $5.9 trillion. 

Boeing is on the road to Morocco, where it will open a major Boeing hub. King Mohammed VI, who has the last word on all things major, oversaw the signing of a memorandum of understanding in Tangiers to establish an industrial zone where up to 120 Boeing suppliers and sub-contractors could operate, and where some 8,700 jobs will be created. 

Morocco’s aeronautical industry has seen a six-fold growth in ten years, with 121 firms employing 10,000 people for annual revenue of $1 billion.

The World Trade Organization (WTO) claims that the EU has failed to eliminate subsidies to Airbus Group SE that were previously found to violate trade rules. This opens the door to billions of dollars in sanctions against Brussels. The U.S., through Airbus vs Boeing, will seek $10 billion in sanctions.

To quote a Boeing V.P., ‘ What we’ve always aspired to is for Europe and Airbus to stop the practice of market-distorting launch aid.

XII. THE MANUFACTURING SCENE: ENERGY, ENERGY, ENERGY

by Royce Lowe   

energyThe world’s ever-increasing need for energy is responsible for new developments in ‘alternate’ forms of energy. The day of the fossil fuel is not at hand, in fact steps will surely be taken to ensure it isn’t. And fracking looks like it’s here to stay for quite a while, in spite of Friends of the Earths’ wishes to the contrary. Progress is being made in energy generation by alternate means, and that can be nothing but good. 

Nuclear power is not something that hits the headlines very often in the U.S. There are regulations, of course, and nuclear power plants take eternities to build. Forgings, and big ones of supreme quality, are required for construction of reactor vessels, and only a small number of forgers are able and certified to produce the required parts. The slow development of nuclear projects discourages more forgers from getting into the business, and the fewer projects there are, the fewer companies there are to participate.

A U.S. developer has recently come up with a new, small modular reactor design that is providing a new line of activity for a renowned forging operation. A company in Portland,OR, NuScale Power LLC, claims to be the only U.S. company to commercialize small modular reactor (SMR) technology. It says its plant design is ‘simple, safe, economic and scalable’ and a full-scale, upper module mock-up of its NuScale Power Module (NPM) has been fabricated.

The plan is to build the first commercial-scale reactor near the Idaho National Laboratory in Idaho Falls. The U.S. Department of Energy will grant $217 million over five years. The plant would be operational in 2024.

The Forger, open-die forger Sheffield Forgemasters International Limited (SFIL), will work with NuScale to develop the manufacturing techniques that will be required to install SMRs in the UK. SFIL will forge a large, civil nuclear reactor vessel head by the end of 2017 as part of a program supported by Innovate UK, a governmental arm that promotes technical research efforts for commercial interests.

SFIL has extensive experience in forging reactor vessel components, and an unparalleled track record in the production of (civil) nuclear forgings of this size.

Here comes Tesla again, this time to generate and supply 20 megawatts of energy storage to Southern California Edison as part of a wider effort to prevent blackouts by replacing fossil-fuel electricity generators with lithium-ion batteries.

They will be operational in record time, at the end of 2016. This is all following the biggest natural gas leak in U.S. history.

Tesla’s contribution is 2,500 homes for a day, but the speed of deployment of the lithium-ion battery packs is the ‘real significance of the deal.’ A 2-megawatt Tesla battery system normally goes for $2.9 million, but negotiation is in order for contracts over 2.5 megawatts. No comment was available on the value of this deal.

Fossil fuels will not go down without a fight, as U.S. shale gas from Pennsylvania is set to save 10,000 jobs in Grangemouth in Scotland. A tanker arrived on September 27 with 27,500 cubic meters of ethane. Eight tankers are lined up to make regular shipments to Britain and Norway. There is a moratorium on fracking in Scotland, so there will be protests about this arrangement. Supplies from the North Sea are becoming increasingly difficult and costly to extract since the wells matured.

XIII. TECHIE CORNER: A LITTLE MORE 3D PRINTING

by Royce Lowe

3D printer

3D printing, though not as new as it might appear, has been responsible of late for some quite remarkable structures. A Chinese company, WinSun, has 3D printed villas, apartment buildings and homes. In 2014 it built a 200 square meter home from concrete and later the highest 3D printed building, a five story apartment block, as well as the world’s first 3d printed villa at 1,100 square meters. The innovative 3D printing material is a mix of recycled construction waste, glass fiber, steel, cement and other additives, and the large-scale 3D printer is 6.6 meters high, 10 meters wide and 150 meters long

Back in Houston, TX, student Alex Le Roux has 3D printed a tiny house, 8′ x 5′ x 7′ – by himself, using his own V2 Vesta 3D Printer with a build volume of 10′ x 10′ x 10′. The Tiny House is being heralded as the United States’ first liveable 3D printed structure and was printed from a cement-based mix in only 24 hours. Bit small though?

XIV. OTHER NEW NEWS

by Royce Lowe

rolled metalNucor Corp., the largest U.S. steelmaker, says its growth prospects and profits picture are looking much better following anti-dumping measures against Chinese steel products. Nucor recently purchased Independence Tube Corp. (ITC) for $435 million. ITC makes High-Strength Structural Tubing in Illinois and Alabama, and is situated close to Nucor’s sheet mills. This is part of Nucor’s efforts to get into value added products.

(China’s) Fuyao Glass America Inc. has given rebirth to an abandoned GM plant in Ohio and will, some say, one low wage at a time, produce glass for 4 million vehicles per year. This project represents a potential $200 million investment and creation of more than 2,000 jobs, a lot of them not very well paid – but they are jobs. The company will receive a $9.7 million tax credit from Republican-run Ohio and $1 million for road work. The plant was officially opened on October 7.

China’s Baosteel Group Corp., its number 2 steelmaker and Wuhan Iron and Steel Group Corp., its number 6, will swap shares to become the world’s second largest steelmaker, hot on the heels of ArcelorMittal. There could be other mergers.

According to the China Iron and Steel Association the country has steelmaking capacity of 1.2 billion tons, and made 803 million tons in 2015. These mergers represent an effort on China’s part to reduce its steelmaking capacity, something it has pledged to do over the coming years. In the meantime, things look better for the U.S. steel industry since very heavy duties were levied against a whole range of Chinese steel products.

XV. THE FINAL WORD

by Royce Lowe

Things look better this month in the U.S. manufacturing sector, and further, in the global manufacturing sector also. 

Tesla attracts media attention whenever one of its vehicles has an accident or an incident, driver’s fault or no. Mr. Musk, unusually propelled as he may be, deserves some credit for what he is trying to do.

Cautious optimism might be the order of the day, or the month, again.

Last Months Issue can be seen HERE

All OTHER ARCHIVE BACK ISSUES

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Metals & Manufacturing Outlook September 2016


metals & Manufacturing Outlook Newsletter

Presented by All Metals & Forge Group, the MetalsWatch! newsletter was first published in print in 1988 for All Metals & Forge Group. Its primary focus was to be informative to the metalworking industries in the United States. Its original circulation was 2500 organizations. In 1994 we converted to electronic version only, therefore our first archived edition is dated Dec 1994 . Previous printed issues are not available for archiving. Today, Metals & Manufacturing Outlook™ (formerly MetalsWatch!) has a global circulation of 60,000 subscribers at 50,000 companies from a very diverse group of industries, including Aerospace, Defense, Oil, Chemical, Automotive, Medical, Electronics, Heavy Industry, Shipbuilding, amongst many others. Feel free to read the most current issue below, or Click here to view the back issues in our Library at the bottom of the page. To Subscribe to Metals & Manufacturing Outlook™ and receive future issues, please enter your e-mail address and click on Submit below.

 

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I. Cover Story: THIS WAS AN UP AND DOWN, ROUNDAND ROUND MONTH
II. NORTH AMERICAN PERSPECTIVE
III. EUROZONE
IV. MANUFACTURING TALK RADIO
V. ASIA OUTLOOK
VI. SOUTH AMERICA
VII. FORGING AND CASTING
VIII. BUSINESS SURVEY INSIGHTS
IX. THE SKILLS GAP
X. AUTOMOTIVE
XI. AEROSPACE
XII. THE MANUFACTURING SCENE
XIII. TECHIE CORNER
XIV. OTHER NEW NEWS
XV. THE FINAL WORD

PUBLISHER’S STATEMENT

So, here we are in September and nothing has changed much. A recent survey by CNN of working American’s mirrors the statements by employers across the country: America is in the doldrums.

It is surprising what a substantial difference there is between a 2.0 GDP and a 3.0 GDP. At 3.0, things are hopping; at 2.0, things are sluggish. At 1.0, things are stagnant. Most of the forecasts for 2016 are a GDP between 1.8 and 2.1 – sluggish. For 2017 and 2018, the projections are about the same, around 2. So far for 2016 we are at 0.8 for Q1 and 1.1 for Q2 – stagnant.

The problem? Any problem could cause the GDP to dip lower, and little is pointing to a higher GDP. Reason(s)? Consumer debt remains high – there is very little room for discretionary spending. Manufacturing is investing in short-term ROI projects like new technology, not long term projects like new equipment even though some plant construction is up. Some of that space may remain idle unless the economy picks up.

What is everyone waiting for? The election – lots of people are hoping that the outcome will trigger economic growth. The challenge? The country is mired in what will soon be $20 trillion in debt, or 120% of total GDP – not seen since World War II. And, there is no plan to work down the debt – just more talk of more federal spending. Where is that money going to come from? Your pocket!

Our clinically grossly obese government needs to go on a diet and shed debt, and probably some employees, too. Blindly going forward into $30 trillion in debt is a fools errand, but NO politicians are talking about ways to reduce spending. No one likes to hear about spending cuts or cuts to the government workforce.

What is the Fed to do? Raise rates? That will also increase the debt service cost, just like the rate going up on your credit card. Less goes to principal, more goes to interest, and the payoff stretches way off into the future. Raising rates is the way the government heads off inflation; they haven’t raise rates because their read is that the economy is weak and inflation is almost non-existent – unless you happen to include food, education, health care and housing – which they apparently don’t.

If the government cuts corporate tax rates, where will they get the money to pay their bills, pay the debt service, and pay down this national travesty? Your pocket! Expect personal income taxes to raise regardless of who gets elected – they will lie and tell you that won’t happen, but it will. It is either cut spending, shed debt, and reduce federal employee head count, or raise taxes on taxpayers. We would like to see them do the former before they do the latter, but there is no evidence they will cut their own throats or turn down the tap on the spending flow in Washington D.C.

If personal income taxes go up, the GDP goes down. Discretionary spending will drop and since consumers drive 70% of our nation’s economy, personal spending will decline because you won’t have it to spend anymore. So, people feel the country is headed in the wrong direction.

Manufacturers share the pain – laws, rules, regulations and policies coming out of every department and federal agency continue to dump some new and often ridiculous compliance issues the Utopians in Congress conjured up. How will companies pay for it? Eliminate a job or two – the minimum compliance cost across all businesses is now estimated at $35,000 a year for small businesses on up to over 100 fold that for major corporations, and it is rising.

All this won’t end well for America. The General Accounting Office, the Congressional Budget Office, Moody’s, Standard & Poor’s, and Fitch Ratings all agree that a $30 trillion national debt is not sustainable – it means the USA goes bankrupt like Russia did.

The bottom line? The days of boom/bust economic cycles may be gone forever. They were fuelled by debt: credit cards in the 80’s, home equity lines of credit in the 90’s, easy home mortgages in the 2000’s – there aren’t any other consumer debt instruments to drive the next boom and the government is out of gas, but they run deficits every year anyways. So the likely scenario for the foreseeable future are modest economic ups and downs instead of big waves we ride until they crash and we all tumble inside them. Put away your surfboard and get out your floaties – it’s going to be a dull day at the beach.

Best Regards,
Lewis A. Weiss
Publisher


I. COVER STORY: THIS WAS AN UP AND DOWN, ROUND AND ROUND MONTH

Metals and Manufacturing outlook newsletterISM PMI down in August.  

Brexit-bound Britain sees its August manufacturing performance rebound and then some. 

U.S. car and light truck sales drop over 4 percent y-o-y, Canada’s light vehicle sales drop 2 percent y-o-y and Western Europe car sales increase 8 percent y-o-y.

FCA sales executive found fudging figures. Sales weren’t what they were said to be. This will be an ongoing story as the U.S. Department of Justice is on the case.

The U.S. created 151,000 non-farm jobs in August. This was less than the estimated 180,000 jobs increase, but together with June and July’s figures which were over expectations, gave an average increase over the past three months of 232,000.

Meanwhile the Reshoring Initiative estimates that 265,000 jobs were brought back to the U.S. between January 2010 and July 2016. The reasons for the job return is said to be government incentives, ecosystems/localization, proximity to customers and availability of a skilled workforce.

Thanks to anti-dumping measures against a good number of countries, particularly China, the U.S. is seeing its steel prices holding up. A coincident reduction in demand from the manufacturing sector sees the start of a domestic price war. China exported 67.4 million tons of steel in the first seven months of 2016, a record for the period. Along with steel the U.S. aluminum industry is also crying for help. See XIV. Other New News.  

It is reported that orders for U.S. capital equipment recently rose by the most since January. There was a pickup in July, for the second consecutive month, in non-military bookings, excluding aircraft, of 1.6 percent, exceeding even the most optimistic forecast in a recent Bloomberg survey, and representing the first back-to-back increase since January 2015.

U.S. Construction coming back. See section XIV. Other New News.

The ISM PMI figure for U.S. manufacturing moved back into contraction in the month of August to 49.4 percent from July’s 52.6 percent, following five months of growth in manufacturing. The overall economy grew for the 87th consecutive month. Economic forecasts had predicted a PMI for August from 50.7 to 53.4. See North American Perspective for details. 

The IHS Markit PMI for the U.S. manufacturing sector eased back to 52.0 percent in August from July’s 52.9 reading. Markit’s August data pointed to a further moderate upturn in conditions across the U.S. manufacturing sector, but the overall pace of improvement was slower than in July amid weaker increases in new orders and employment. Inventories are down for the third consecutive month.

The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.

Manufacturers said production volumes were up with the pace of expansion the joint-fastest since November 2015, and new export orders rising at the strongest pace since September 2014. Through all this there is talk of an underlying weak domestic demand and a possible temporary negative effect of the U.S. election campaign.

The Bureau of Economic Analysis came out with its ‘second’ estimate for the annual rate of Real GDP growth in the second quarter of 2016, putting it at 1.1 percent. The figure for the first quarter was 0.8 percent.

GALLUP’s U.S. Economic Confidence Index was at -11 in early September, with the coincident job creation index at +33. 

World crude steel production for the 66 reporting countries for the month of                             July 2016 was 133.74Mt, 1.4 percent up y-o-y.

U.S. crude steel production, for July 2016 was 6.88Mt, down 2.2 percent y-o-y. 

Primary Global Aluminum Production in July 2016 was reported at 4.897 million tonnes, of which 2.659 million tonnes, over 54 percent, was produced in China. The Gulf Corporation Council (GCC) produced 437,000 tonnes, North America 336,000 tonnes, Western Europe 315,000 tonnes and Eastern and Central Europe 335,000 tonnes.

Here are the latest figures for US new car and light truck sales for ‘The Big 8’ for August 2016. It will be noted that all of the big eight’s sales were down for August, with lower car sales responsible for the overall drop.

The ‘Big Eight’ August ’16 August ’15 YTD % change
General Motors 256429 270480 -5.2
Ford 213411 233880 -8.8
Toyota 213125 224381 -5
FCA 193987 198209 -2.1
Honda 149571 155491 -3.8
Nissan

124638

 

133351 -6.5
Hyundai/Kia 126263 130909 -3.6
VW 29384 32332 -9.1
Total new   cars and light trucks 1512556

1577407

 

-4.1 

Total cars        600,983                687,998                -12.6                   

Total l/trucks  911,573                889,409                2.5

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

 

  GDP Indl Prodn Cons prices Unemployt
United States +1.2 (qtr) -0.5 (July) +0.8 (July) 4.9 (July)
Canada +2.4 (qtr) -2.8 (May) +1.3 (July) 6.9 (July)
China +7.4 (qtr) +6.0 (July) +1.8 (July) 4.1 (Qtr 2)
Japan +0.2 (qtr) -1.5 (June) -0.5 (June) 3.1 (June)
Britain +2.4 (qtr)

+1.6 (June)

 

+0.6 (July) 4.9 (May)
Euro Area +1.1 (qtr) +0.4 (June) +0.2 (July) 10.1 (June)
France -0.2 (qtr) -1.3 (June) +0.2 (July) 9.9 (June)
Germany +1.7 (qtr) +0.5 (June) +0.4 (July) 6.1 (July)
Italy nil (qtr) -1.0 (June) -0.1 (July) 11.6 (June)
Spain +2.8 (qtr) +1.0 (June) -0.6 (July) 19.9 (June)
India +9.6 (qtr) +2.1 (June) +6.1 (July) 4.9 (2013)
Brazil – 1.1 (qtr) -5.9 (June) +8.7 (July) 11.3 (June)
Taiwan + 0.2 (qtr) -0.3 (July) +1.2 (July) 4.0 (July)
Mexico – 0.7 (qtr) +0.6 (June)

+2.7 (July)

 

3.9 (June)

  

FF Journal Magazine

II NORTH AMERICAN PERSPECTIVE

by Royce Lowe

North American manufacturing

The Institute of Supply Management PMI figure registered 49.4 percent in August, off 3.2 percentage points from July’s 52.6 reading, representing contraction in manufacturing following five months of growth. There was growth in the overall economy for the 87th consecutive month.

ISM PMI

ISM PMI for the past 90 days

Six of the 18 manufacturing industries reported growth in August in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 11 industries reporting contraction in August, listed in order are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Transportation Equipment; Machinery; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; and Fabricated Metal Products.

Despite the rather significant easing of the PMI figure in August, there were still some very positive comments from the industry. Albeit, Chemical Products, Computer & Electronic Products and Transportation Equipment spoke of flat conditions. On the other hand, there was positive feedback from Nonmetallic Mineral Products, Fabricated Metal products, Food, Beverage & Tobacco Products, Machinery and Miscellaneous Manufacturing. A respondent from Plastics & Rubber Products was concerned with the difficulty in finding suitable employees, and from a Petroleum & Coal Products respondent we heard of a rig count slowly increasing.

The following 5 components of the ISM’s PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories are equally weighted and used to calculate the PMI number. A monthly PMI over 50.0 indicates an expanding economy; a number over 60.0 indicates strong manufacturing output, although overheating may occur.

The New Orders Index took a tumble in August to 49.1 percent down 7.8 percent from July’s 56.9 percent reading. This is the first time this index has been in contraction since February this year. Growth was noted in six industries, including Computer & Electronic Products; Miscellaneous Manufacturing; Chemical Products; and Fabricated Metal Products. Nine industries reported a decrease in new orders during August, including: Transportation Equipment; Plastics & Rubber Products; Machinery; Primary Metals; and Paper Products.

The Production Index also slipped into contraction territory in August, and at 49.6 percent or 5.8 percentage points below July’s 55.4 reading, represented the lowest figure since August 2012, when this index registered 49.5 percent. Growth was noted in eight of the eighteen industries, including Chemical Products; Primary Metals; Computer & Electronic Products; and Fabricated Metal Products; The eight industries reporting a decrease in production during August include Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Transportation Equipment; Machinery; and Paper Products.

Employment fell 1.1 percentage points in August with the index at 48.3, down from July’s 49.4 reading, representing contraction in employment for the second consecutive month. Employment growth was reported in five industries in August, namely Printing & Related Support Activities; Paper Products; Primary Metals; Computer & Electronic Products; and Nonmetallic Mineral Products. The nine industries reporting a decrease in employment in August include Transportation Equipment; Plastics & Rubber Products; Petroleum & Coal Products; Machinery; Chemical Products; and Textile Mills.

The delivery performance of suppliers to manufacturers was slower in August as the index registered 50.9 percent, or 0.9 percentage points lower than July’s 51.8 reading. Six industries reported slower supplier deliveries in August namely Nonmetallic Mineral Products; Transportation Equipment; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; and Chemical Products. The four industries reporting faster supplier deliveries in August are: Paper Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products. Eight industries reported no change in supplier deliveries in August compared to July.

Raw Materials Inventories contracted for the 14th consecutive month in August as the Inventories Index decreased slightly to 49.0 percent from July’s 49.5 reading. Four industries reported higher inventories in August namely Wood Products; Apparel, Leather & Allied Products; Transportation Equipment; and Nonmetallic Mineral Products. The 11 industries reporting lower inventories in August include Textile Mills; Chemical Products; Fabricated Metal Products; Primary Metals; Computer & Electronic Products; Machinery; and Plastics & Rubber Products.

The following 5 components of the ISM’s PMI, Customer Inventories, Prices, Backlog of Orders, Exports and Imports are not used to calculate the PMI number but are tracked for trends in the marketplace

ISMThe ISM Customers’ Inventories Index registered 49.5 percent in August, or 1.5 percentage points below July’s 51.0 reading, meaning that customers’ inventories are considered to be too low in August, having been considered to be too high for three previous consecutive months. Five manufacturing industries reported customers’ inventories as being too high during the month of August, namely Petroleum & Coal Products; Furniture & Related Products; Transportation Equipment; Machinery; and Plastics & Rubber Products. The eight industries reporting customers’ inventories as too low during August include Primary Metals; Paper Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products.

The ISM Prices Index registered 53.0 percent in August, which is 2.0 percentage points lower than July’s 55.0 percent reading, indicating an increase in raw material prices for the sixth consecutive month. In August 19 percent of respondents reported paying higher prices, 13 percent lower and 68 percent the same prices as in July. Of the 18 manufacturing industries, the nine industries that reported paying increased prices for its raw materials in August are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Transportation Equipment; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; and Nonmetallic Mineral Products. The three industries reporting paying lower prices during the month of August are: Electrical Equipment, Appliances & Components; Furniture & Related Products; and Food, Beverage & Tobacco Products. Six industries listed no change in prices in August compared to July.

Up in Price in August were:

Caustic Soda; Copper (2); Gold (2); Nickel; Plastic Resins; Propylene; Stainless Steel (5); Steel* (8); and Titanium Dioxide.

Commodities Down in Price
Corn (2); Corrugate (2); Diesel; Scrap Steel; Steel* (2); Steel — Cold Rolled; and Steel — Hot Rolled.
Commodities in Short Supply

None (5).

* indicates both up and down in price

Note: The number of consecutive months the commodity is listed is  indicated after each item.

The ISM Backlog of Orders Index was at 45.5 percent in August, 2.5 percentage points down on the July reading of 48.0 percent, indicating contraction in order backlogs for the second consecutive month. Of the 88 percent of respondents who measured their backlogs, 18 percent reported greater backlogs, 27 percent smaller backlogs and 55 percent no change from July. The four industries reporting growth in order backlogs in August are: Printing & Related Support Activities; Petroleum & Coal Products; Computer & Electronic Products; and Fabricated Metal Products. The 12 industries reporting a decrease in order backlogs during August include Transportation Equipment; Primary Metals; Paper Products; Machinery; Plastics & Rubber Products; and Chemical Products.

The ISM New Export Orders Index was at 52.5 percent for August, unchanged from July’s reading and representing growth in new export orders for the sixth consecutive month. The eight industries reporting growth in new export orders in August are: Wood Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Paper Products. The six industries reporting a decrease in new export orders during August are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; and Transportation Equipment.

The ISM Imports Index is at 47.0 percent in August, five percentage points lower than July’s reading of 52.0 percent, representing a decrease in imports after four months of an imports index of 50.0 or above. The four industries reporting growth in imports during the month of August are: Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Machinery. The nine industries reporting a decrease in imports during August are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Textile Mills; Primary Metals; Plastics & Rubber Products; Paper Products; Transportation Equipment; Miscellaneous Manufacturing; and Fabricated Metal Products. 

CANADA’S IHS Markit Manufacturing PMI decreased to 51.1 in August from July’s 51.9 reading, with a renewed slowdown in production and new order growth in the Canadian manufacturing sector.

August saw the slowest rise in production levels for six months, along with a further drop in export sales and a slower pace of employment growth.

All regions showed an increase in manufacturing production, with Ontario the best. Alberta and B.C. showed the slowest fall in manufacturing production for just over 18 months.

Canada produced 1.14 Mt of crude steel in July, up 3.5 percent y-o-y. Canada’s light vehicle sales were off 2 percent y-o-y at 172,277 units in August, due mostly to significant sales reductions by GM and FCA/Chrysler. Sales for the first eight months of 2016 were up 3.8 percent at 1,337,504 units.

MEXICO’s PMI increased slightly to 50.9 from July’s 33-month low reading of 50.6. The month saw a slight fall in production but a solid increase in new orders and a continuing growth, for the 25th consecutive month. in employment. There was a sharp drop in backlog. Mexico produced 1.65Mt of crude steel in July, up 8.8 percent y-o-y.

III.  EUROZONE

by Royce Lowe

IHS Markit

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for August, at 51.7 was down from July’s 52.0 reading, as some growth momentum was lost in August, with expansion rates slowing for production and new orders, both domestic and export. The PMI has grown for 38 consecutive months.  

Job creation in the Eurozone was the weakest since March, but the outlook remains ‘mildly positive’ as backlogs increased at the fastest pace in two-and-a -half years. Germany and the Netherlands are leading the Eurozone pack.

  PMI High/low
Germany 53.6 (53.8) 3-month low
Netherlands 53.5 (53.2) 5-month high
Austria 52.1 (53.4) 3-month low
Ireland 51.7 (50.2) 2-month high
Spain 51.0 (51.0) unchanged
Greece 50.4 (50.4) 2-month high
Italy 49.8 (51.2) 20-month low
France 48.3 (48.3) 2-month low

There was an extra selling day for cars in Europe in August and passenger car sales were up significantly, by 8.1 percent, with 765,383 cars sold in Western Europe, including the UK. Germany was up 8.3 percent, as VW’s sales moved from a 13 percent drop in July to a 16 percent hike in August, while France went up 6.7 percent, Italy 20 percent, Spain 15 percent and the UK 3.3 percent. 

Crude steel production in Germany in July was at 3.39Mt, down 6.1 percent y-o-y; in Italy 2.05Mt, up 6.2 percent y-o-y; in France 1.15Mt, down 4.7 percent y-o-y and in Spain 0.84Mt, down 13.0 percent y-o-y.

Russia’s crude steel production for July was at 6.13Mt, up 0.9 percent y-o-y; Ukraine’s was 2.06Mt, up 10.5 percent y-o-y.

IHS Markit reports a rebound in the UK manufacturing PMI from July’s three-year low level of 48.2 to a 10-month high in August of 53.3. Trends in new orders and production were definitely on the up, with a weaker Sterling good for export orders, as witnessed by increased sales to North America, Europe, China, South-East Asia, the Middle-East and Norway. Employment was up for the first time in the year-to-date. The UK produced 0.66Mt of crude steel in June, down 27.3 percent y-o-y.

IV. MANUFACTURING TALK RADIO – TELLING THE STORY BEHIND THE SOUNDBITES

by Tim Grady

Manufacturing Talk Radio has been doing deep dives into subjects that only get sound bites on main stream media. While the narrowest definition of manufacturing as a percentage of GDP is 11-12%, the impact of manufacturing is far greater. Various organizations that measure the multiplier effect gauge it between $1.40 and $1.80 that is generated for every $1.00 in manufacturing. That would make manufacturing from 25-33% of GDP. For example, what would retail sell without manufacturing? How would one construct homes or buildings without manufacturing? One might argue that mining and construction belong in manufacturing, but that’s a discussion for another day.

We encourage readers to look through the “Tags” at www.mfgtalkradio.com and listen to shows relevant to their business or industry. With over 150 shows in the library and guests from business, industry, state and federal governments, academia, associations and organizations, there will be several topics listeners will find useful.

V. ASIA OUTLOOK

by Royce Lowe

 - Japanese yen currency and Calculator

CHINA produced 66.8Mt of crude steel in July, up 2.6 percent y-o-y; Japan 8.87Mt up 0.5 percent y-o-y; India 8.08Mt, up 8.1 percent y-o-y and South Korea 6.01Mt, up 1.5 percent y-o-y. Taiwan produced 1.89Mt in July, up 4.0 percent y-o-y.

 The Caixin China manufacturing PMI dropped from July’s 50.6 to 50.0 in August, effectively into stagnation. Production and total new orders both rose at slower rates than in July, and export sales continued to decline. Employment contracted in August, albeit at the slowest rate to date in 2016.

Figures from the Chinese Association of Automobile Manufacturers (CAAM) say that passenger car sales were up 26.3 percent y-o-y in July at 1.6 million units. A government policy halved the sales tax on cars with a less than 1.6 liter motor and sales of these cars were up 38.6 percent y-o-y to 1.14 million in July, some 71 percent of total sales. Sales for cars for the first seven months of 2016 are up 11 percent to 12.64 million units, with combined sales of cars and commercial vehicles up 9.84 percent to 14.68 million units.

JAPAN’s manufacturing PMI increased from July’s 49.3 to 49.5 in August, the highest reading since February. The downturn in the manufacturing sector was at a weaker pace, with production picking up for the first time since February. New orders, both domestic and export, declined at the slowest rate in six months.

The INDIAN manufacturing sector’s PMI rose to a 13-month high of 52.6 in August, from July’s 51.8 figure. The month saw stronger growth in new orders – both domestic and export – and production. New orders increased at the fastest pace since December 2014, with consumer goods leading, but with solid growth in the intermediate and investment categories.

VI. SOUTH AMERICA

by Royce Lowe

bazil-badIn Brazil, the rate of contraction in new orders accelerates. Production decreases at a weaker pace and there are further reductions in employment. The PMI for August, at 45.7, down from July’s 46.0, represents the 19th consecutive month the PMI has been below the 50 mark. 

Dilma Rousseff has been impeached and the Vice-President Michel Temer, who has been at the helm since May, will serve out the 28-month balance of Rousseff’s term. Needless to say, Mr. Temer has resolved to do something about the economy.

Brazil’s crude steel production for the month of July was 2.70Mt, a 6.0 percent y-o-y decrease.

The JP Morgan Global Manufacturing PMI – a composite index produced by JPMorgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – decreased slightly in August to 50.8 from July’s 51.0 reading.

North America and Europe were the driving forces in the overall moderate expansion seen in August. Japan, South Korea, Malaysia, Thailand and Myanmar contracted while China stagnated. There was expansion in Taiwan, India, Indonesia, Vietnam and the Philippines.

The pace of increase slowed in the Eurozone while the UK rebounded sharply from July’s downturn. Global manufacturing saw the sharpest production increase in consumer goods, with modest expansion in intermediate and investment goods. New order growth was slower than in July and there was a marginal reduction in global manufacturing employment, with job creation slowing sharply in the U.S., easing in the Eurozone, stagnating in Japan and falling in China. The UK saw increases in employment, as did South Korea, Taiwan, India, Canada, Mexico, Turkey, Vietnam, the Philippines, Poland and the Czech Republic.

The big concern at the moment seems to be the level of new orders.

VII. FORGING AND CASTING

by Royce Lowe

Britain’s Sheffield Forgemasters International Ltd. has a new $30-million award from the U.S. Dept. of Defense to supply steel castings as part of the Columbia-class submarine program. The Columbia-class will be a series of nuclear-powered vessels in line to replace the current Ohio-class ballistic missile submarine, which is a critical element of the U.S. nuclear missile defense strategy.

Few details of the contract are available, but it is speculated that the castings will form part of the subs’ nuclear-missile launch system.

Ellwood Texas Forge Navasota (ETFN) made its first production shipment of 15-5PH flap-track forgings for the 737 program to the Boeing Portland (Oregon) fabrication facility. Ellwood and Boeing concluded negotiations on aseamless rolled ring new multi-year contract in May 2015 and shortly after began the qualification processes and testing required. ETFN is one of two closed-die forging companies owned by Ellwood Group Inc. of Ellwood City, Pa. Located in southeast Texas, ETFN uses conventional hammers, computer-controlled counterblow hammers and computer-controlled presses to manufacture near-net closed-die forgings in carbon, alloy, and stainless steels, and titanium. ETFN also has in-house heat-treatment and testing capabilities.

The Hirschvogel Automotive Group, headquartered in Denklingen, Germany, will set up a new plant in Mexico. Hirschvogel, a global producer of forged steel and aluminum components, will locate the facility in San Juan del Río in the state of Querétaro about 90 miles northwest of Mexico City. The new site spans 115,000 square meters, about 1.24 million square feet, and groundbreaking is expected to occur in September. Installation of the forging machines is scheduled for the end of 2017, and full production of constant-velocity joints and transmission shafts is expected to commence in early 2018. The company, Hirschvogel Components Mexico S.A. de C.V., will be managed by President and CEO Stephan Lutzenberger, who most recently served as corporate product and process development, forging at the Denklingen plant.

VIII. GLOBAL ECONOMIES CONTINUE EQUILIBRIOUS AUGUST 2016 BUSINESS SURVEY INSIGHTS

by Norbert Ore

global mfg

With only a couple of exceptions, bouncing up and down around the mid-point seems to be the trend for the August reports as it appears that many reports that were up in July fell in August and vice versa. While the overall picture appears eerily balanced, more remarkable is the resilience that keeps surfacing.

While global economies are still considered to be underperforming, 13 of the 18 (12 in July) surveys that we follow are growing at an average PMI of 51.9 and lower than the July average of 52.8 percent. The JP Morgan Chase Global PMI (50.8, -0.2) which measures over 30 countries indicates that August provides little change from July.

In the continuing saga of the Brexit, the UK (53.3, +5.1) reversed direction in August and made a substantial showing since the UK averaged only 51 for the first half of 2016. Last month we posited that there had to be some inventory accumulation as supply insurance prior to the vote and then a degree of liquidation afterward – that is still a likely explanation as it is punctuated by the bounce.

China’s Official Report, the CFLP PMI (50.4, +0.5), has averaged 49.9 for the first eight months of the year. The Caixin China General Manufacturing PMI (50.0, -0.6) fell to the mid-point and has averaged 49.2 for the first eight months. Manufacturing in China has shown little change since we began tracking both surveys in 2012.

ScattergramIn North America, Canada (51.1, -0.8) reported growth for the sixth month following a seven-month contraction. Mexico (50.9 +0.3) recorded its thirty-seventh consecutive month of growth as it recovered slightly after posting its lowest level in 33 months in July.

NOTE: If you are a manufacturer and want to receive two free reports without being solicited for anything else, simply participate in this survey by answering two short questions each month. Send an email to

IX. THE SKILLS GAP, EMPLOYMENT, AND ASSOCIATED TOPICS

by Royce Lowe

Engineer Teaching Apprentice To Use Milling Machine Together

Peter Feil heads U.S. operations for German gearbox and motor maker Stober Drives. The company has 120 employees and is located in Maysville KY, a town of 9,000 people, an hour from both Cincinnati and Lexington.

Mr. Feil is very keen on apprenticeships, and since launching a program some ten years ago the company has trained 32 apprentices and has 16 current. The community is relatively small, and the apprenticeship program is open to a broad age range, and has taken in applicants from 18 to 43 years of age, to study anything from machining to maintenance and in accounting, electrical, marketing, industrial engineering and quality.

The community needs good workers, hence the program, and to quote Mr. Feil, ‘anything we can do to provide opportunities and convince kids to stay is going to be critical for maintaining any kind of industry ……the more kids we can retain, the more businesses will thrive. Every kid we lose is a lifetime worker that’s not going to be in our town.’ The average age of an apprentice is 29, and as such it is not like Germany, but if someone is 40 and suitable they will be welcome and appreciated on the program.

Mr. Feil says one of the big secrets of his company’s success is that they’re in the power transmission and motion control business, ‘but to be sustainable we also need to be in the people development business’.

X. AUTOMOTIVE

by Royce Lowe

car productionNissan says that UK E.V. Chargers may outnumber fuel stations by 2020. More than 75 percent of gas stations in the UK closed in the past 40 years, whereas the number of EV Charging stations has increased from a few hundred in 2011 to 4,100 in 2016.

FORD says it will mass produce a fully autonomous, self-driving car without a steering wheel by 2021.

Local Motors – you already read about them here – manufacturers of Olli the minibus with IBM’s Watson computer, and other cars made to order, are now partnered with GE, Siemens, PLM, Sabic, NXP and IBM. They have received orders for Olli from around the world, possibly because Watson, along for the ride, will answer any questions passengers may have. LM is not looking to produce extraordinary numbers of vehicles, rather hundreds of mini-factories across the country that might produce 3,000 vehicles per year. The first mini-factory, in Knoxville, TN, will start producing cars in 2018. 

Tesla has developed a 100 KwH battery with a 315 mile (500 km) range, for a car that will go from 0 to 60 in 2.5 seconds (who needs it?)

It is estimated that in the first (just over) seven months of this year, 19,100 people were killed on U.S. roads, and that 2.2 million were seriously injured. The total cost was approximately $205 billion and the figures are about 9 percent up on the corresponding figures for 2015. Possible reasons being put forward are a stronger economy, lower unemployment, average gas price down 16 percent on 2015 and an increase in miles driven of 3.3 percent.

Driverless taxis will hit the streets of Singapore in the next couple of years, at least a 2.5 square mile area. Renault and Mitsubishi will collaborate on the vehicles for nuTonomy, a U.S. based tech start-up that developed the software used in the vehicles. Six taxis will take part in the trials, each accompanied by an engineer who will be ready to take over in an emergency.

Volvo and Uber are to venture together into driverless car technology.

VW meanwhile, even though it has come to a huge settlement with states and individual owners, has yet to pass by Federal and State authorities, including the Justice Department. Some 600,000 vehicles in the U.S. and about 11 million worldwide are ‘in question.’

XI. AEROSPACE

by Royce Lowe

747Joe Sutter, a Boeing engineer and Father of the 747, died recently at the age of 95. He led the team that crafted the ‘jumbo jet’ in less than two-and-a-half years, and left his influence on most of the aircraft that came after.

A week after the Air Force said its version of the Lockheed Martin Corp’s F-35 was ready for limited combat operations, Michael Gilmore, the Defense Department’s director of operational testing, said the $400 billion project was ‘still riddled with deficiencies.’ This is bad for both the Air Force and for those countries who have committed to buy, namely the UK, Italy, Australia, Japan and Israel – if the project moves into production in 2019.

China will invest $7.5 billion in a jet engine conglomerate with almost 100,000 employees, the Aero Engine Corporation of China (A.E.E.C.) President Xi Jinping said the company would make China an aviation power and would modernize its military.

China does not make large commercial jet engines of its own and its narrow-body aircraft, the C919, is powered by engines from CPM International, a joint venture between GE and France’s Safran.

This is a long-term project, and ‘getting it right’ will be a very long-term project.

ANA Holdings Inc., the world’s biggest operator of Boeing’s Dreamliner jet, is checking the Rolls Royce engines on its entire fleet of 787s following a February incident when an airliner had to shut down a power plant and return to the airport. Corrosion was found on turbine blades and Rolls Royce will supply modified versions of these blades.

All 787s worldwide were taken from the skies in 2013 following a lithium-ion battery meltdown, a problem Boeing fixed. This represented the first time in over three decades that an entire model had been grounded.

Rolls Royce meanwhile has a $1.5 billion contract to supply Trent 700 engines to power 15 Airbus A330 jets for China Eastern Airlines, a contract that includes long-term maintenance and support services.

XII. THE MANUFACTURING SCENE: EAST MEETS WEST, OR BUILDING THE LEXUS IN THE U.S.

by Royce Lowe

lexusWil James walked through mud when they were breaking ground for Toyota’s Camry plant back in the late eighties. He’s worked for Toyota since 1987, when the Georgetown, KY plant was going up, and is now president of Toyota manufacturing USA, and hence ultimately responsible for the recently completed $360 million second plant. Where they’ll build the Lexus ES 350.

Mr. James had 30 months to put together a 750-person team, trained to meet the standards required in a luxury brand producing 50,000 cars a year, a challenge bigger than building the plant and setting up the equipment. Some 75 percent of the Lexus workers came from the Camry plant, some of whom had been there since 1987, so they were thoroughly versed in the Toyota production system. The Lexus, however, required longer stretches on each process, more sensory tasks and more expertise. Workers who had been used to completing their process in 55 seconds found themselves on a line moving at about 4.1/2 minutes per process. This meant sensory, especially touch, detection of flaws as small as a human hair.

In Japan Lexus plant workers follow the principles of Takumi, or master craftsmen, whose expertise is so valued that their framed photographs hang on Lexus plant walls. The mindset of the Japanese counterparts’ 30 years had to be ‘transferred’ to Kentucky workers in 30 months. Toyota Kentucky employees were transferred only to Lexus areas matching their skills, an approach that worked so well that Toyota applied it across the entire Kentucky operation. One-and-a-half million training hours were given to the staff, much with trainers brought in from Japan, before the car went on line.

Some training was sensory, and involved detection of millimeter gaps and blindly pulling three different-sized bolts at a time, so the workers could pull out exactly what they needed for each task by feel. Sight, sound and touch were all involved. There was book learning and recitation of the information held in the pages. Here was perhaps a good reason for learning by rote.

The assembly team stripped and rebuilt 25 ES 350s.

Training was rooted in Kodawari, the Japanese principle that every tiny detail matters, and was at times almost poetic, for example, the plant’s master stitcher, to show what he could do, was required to master origami with his non-dominant hand.

The last word goes to Wil James: ‘Our single most accurate and valuable tool on our production continues to be the highly-skilled, well-trained worker.’

XIII. TECHIE CORNER

by Royce Lowe

geGE is out buying up new technology again. The world’s largest maker of aircraft engines made a bold move to acquire technology that could transform factory production in the coming decades. The company said it will spend $1.4 billion to buy two European makers of 3D printers to expand use for the manufacture of components such as aircraft parts.

GE offered to buy Sweden’s Arcam AB for 5.86 billion kronor (US$680 million) and, in a separate transaction, SLM Solutions Group AG of Germany. The Boston-based company said its first jet engine parts, called fuel nozzle interiors, made with the technology were introduced into service in July, paving the way for wider use.

The global market for 3D printing, or additive manufacturing, is growing as companies like GE move more toward commercial parts production from making prototypes. The aviation industry was a frontrunner in the use of the technology as it allows for more complex designs, helps to lower the weight of parts and cuts back on waste of expensive materials. GE Aviation has said it expects to print more than 100,000 parts for its jet engines by 2020.

GE is effectively buying into two competing technologies. Arcam promotes its proprietary technology, which uses electron beams, as a fast printing process with a greater ability to use a wide range of printing materials. SLM’s (Selective Laser Melting) laser-based systems are generally capable of making more detailed components. GE became Arcam’s top customer last year, placing the largest order to date to help produce turbine blades for jet engines.

The two companies bring together two different additive manufacturing technologies, and with time it is GE’s intention to extend the line of additive manufacturing equipment and products.

GE’s fuel nozzles made using 3D printing are a predominant use of the technology in the aviation industry, but airplane-makers Airbus and Boeing are also working on the process.

Airbus Group is just starting to incorporate 3D-designed parts on a test basis, and aircraft parts produced with such technologies will grow substantially over the coming years.

Siemens AG has acquired 85 percent of Materials Solutions Ltd., of Worcester, England, a company that also uses selective laser melting, in the production of nickel-superalloy parts for land-based and aerospace gas turbines, and specialty steel and titanium components for aerospace systems and performance automotive systems.

XIV. OTHER NEW NEWS

by Royce Lowe

century aluminumMichael Bless, CEO of Century Aluminum, in Hawesville, KY, is trying single-handedly to save the U.S. aluminum industry from China. Alcoa, who have a plant near Shanghai, will not step in, perhaps for fear of retaliation and trade cases.

China produces 55 percent of the world’s aluminum, and plans 9 percent more in 2017, according to Researcher Harbor Intelligence. In the past two years Century’s payroll has been cut by more than half.

Harbor quotes the LME price of aluminum at around $2,800 per ton in 2011, $1,682 in 2015 and recently at $1,564., and says any price below $1528 may result in Century shutting down its remaining smelters.

There are 140,000 workers in the U.S. steel industry, just 3,500 in its aluminum industry. Century and Alcoa are the last two U.S. makers of primary aluminum, which is used to make anything from beer cans to aircraft components. Outside China, Century’s Hawesville smelter is one of just two in the world that mass produces high-purity aluminum used in U.S. defense applications. The other is in Dubai.

We will follow this story with interest.

constructionU.S. Construction is coming back, and contributing more to the economy than it did in 2010. There is a demand for skilled workers.

The construction industry’s impact on the U.S. GDP has increased by over 21 percent since the low point in 2011, according to data from the U.S. Bureau of Economic Analysis. In 2016 construction’s contribution to the U.S. economy increased to over $650 billion for the first time since 2008.

Construction now counts 6.7 million employees, up from the low of 5.4 million in January 2011 and compared to the peak figure of 7.7 million in 2006. Recession-delayed work on roads, bridges and other infrastructure is fueling the increase.

As the building of new houses, offices and roads continues, many construction firms are struggling to find enough workers, especially carpenters and electricians. A 2015 survey by the Associated General Contractors of America (AGC) showed that 86 percent of respondents were having trouble filling available positions, compared to 81 percent in 2013, with carpenters, sheet metal installers, concrete workers, project managers and supervisors particularly hard to find. Lots of construction jobs evaporated during the recession and people left the business to do other things.

Arcelor Mittal, the world’s largest steelmaker, has been fined $110 million for price fixing in South Africa. By ‘colluding’ with competitors it kept prices high in 2008. The company supplies over 61 percent of South Africa’s steel. It will pay its fine in five annual instalments. Sounds like a drop in the ocean really.

GE is to break ground on a new $165 million Brilliant Factory in Welland, Ontario, where it will manufacture energy-efficient reciprocating gas engines and utilize the Industrial Internet of Things. The plant will occupy 450,000 sq. ft. and will employ 220 people by late 2020. Ontario will grant GE $20.5 million and the project will be supported by Canada’s Export Development Council (EDC) with whom GE has a very good relationship. The U.S. Export-Import Bank had not been reauthorized by Congress when the announcement of this project was made in September 2015, and in fact the E-I Bank remains unable to approve transactions over $10 million

XV. THE FINAL WORD

by Royce Lowe

The drop in the U.S. manufacturing PMI into contraction territory may have been an anomaly and there is some cautious optimism for the coming months. The Global scene is plodding along, with Europe and the U.S. being counterbalanced by China and Japan. There again, there are those who say that China is on the up again.

Automotive sales figures in the U.S. fell overall by over 4 percent in August, in spite of buyers being offered the best deals since the great recession. The industry may have peaked but who knows?

A lot is being written about driverless cars, but not too much about the people who may want to sit in them.

The Global manufacturing economy seems to be teetering. It’s month by month, strange but always interesting.

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August 2016 Manufacturing ISM® Report On Business®

PMI® at 49.4%

New Orders, Production and Employment Contracting
Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, while the overall economy grew for the 87th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “The August PMI® registered 49.4 percent, a decrease of 3.2 percentage points from the July reading of 52.6 percent. The New Orders Index registered 49.1 percent, a decrease of 7.8 percentage points from the July reading of 56.9 percent. The Production Index registered 49.6 percent, 5.8 percentage points lower than the July reading of 55.4 percent. The Employment Index registered 48.3 percent, a decrease of 1.1 percentage points from the July reading of 49.4 percent. Inventories of raw materials registered 49 percent, a decrease of 0.5 percentage point from the July reading of 49.5 percent. The Prices Index registered 53 percent, a decrease of 2 percentage points from the July reading of 55 percent, indicating higher raw materials prices for the sixth consecutive month. Manufacturing contracted in August for the first time since February of this year, as only six of our 18 industries reported an increase in new orders in August (down from 12 in July), and only eight of our 18 industries reported an increase in production in August (down from nine in July).”

Of the 18 manufacturing industries, six are reporting growth in August in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 11 industries reporting contraction in August — listed in order — are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Transportation Equipment; Machinery; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; and Fabricated Metal Products.

WHAT RESPONDENTS ARE SAYING …

“We have been getting lots of inquiries, but not a lot of sales order placements.” (Chemical Products)
“Business was flat this month overall.” (Computer & Electronic Products)
“Continued strong market demand for our products related to construction.” (Nonmetallic Mineral Products)
“Commercial construction continues to be strong, and therefore our business is very good.” (Fabricated Metal Products)
“New product distribution is increasing.” (Food, Beverage & Tobacco Products)
“This past month, sales increased over the trend from the first half of the year. There seems to be a general, albeit slight, loosening of capital purse strings.” (Machinery)
“Medical device is still strong.” (Miscellaneous Manufacturing)
“Business conditions are generally flat.” (Transportation Equipment)
“Hard to find production associates. Unemployment in the area is around 4 percent. Can’t get enough employees [which] leads to lots of overtime.” (Plastics & Rubber Products)
“Oil prices continue to seek a ‘footing’; rig count slowly increasing.” (Petroleum & Coal Products)
MANUFACTURING AT A GLANCE
August 2016
Index Series
Index
Aug Series
Index
Jul Percentage
Point
Change

Direction Rate
of
Change
Trend*
(Months)
PMI® 49.4 52.6 -3.2 Contracting From Growing 1
New Orders 49.1 56.9 -7.8 Contracting From Growing 1
Production 49.6 55.4 -5.8 Contracting From Growing 1
Employment 48.3 49.4 -1.1 Contracting Faster 2
Supplier Deliveries 50.9 51.8 -0.9 Slowing Slower 4
Inventories 49.0 49.5 -0.5 Contracting Faster 14
Customers’ Inventories 49.5 51.0 -1.5 Too Low From Too High 1
Prices 53.0 55.0 -2.0 Increasing Slower 6
Backlog of Orders 45.5 48.0 -2.5 Contracting Faster 2
New Export Orders 52.5 52.5 0.0 Growing Same 6
Imports 47.0 52.0 -5.0 Contracting From Growing 1
OVERALL ECONOMY Growing Slower 87
Manufacturing Sector Contracting From Growing 1
Manufacturing ISM® Report On Business® data is seasonally adjusted for New Orders, Production, Employment and Supplier Deliveries indexes.

*Number of months moving in current direction.
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda; Copper (2); Gold (2); Nickel; Plastic Resins; Propylene; Stainless Steel (5); Steel* (8); and Titanium Dioxide.

Commodities Down in Price

Corn (2); Corrugate (2); Diesel; Scrap Steel; Steel* (2); Steel — Cold Rolled; and Steel — Hot Rolled.

Commodities in Short Supply

None (5).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price.

AUGUST 2016 MANUFACTURING INDEX SUMMARIES

PMI®

Manufacturing contracted in August as the PMI® registered 49.4 percent, a decrease of 3.2 percentage points from the July reading of 52.6 percent, indicating contraction in manufacturing for the first time since February 2016 when the PMI registered 49.5. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI® indicates growth for the 87th consecutive month in the overall economy, while indicating contraction in the manufacturing sector for the first time since February of this year. Holcomb stated, “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through August (50.9 percent) corresponds to a 2.4 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI® for August (49.4 percent) is annualized, it corresponds to a 2 percent increase in real GDP annually.”

THE LAST 12 MONTHS

Month PMI® Month PMI®
Aug 2016 49.4 Feb 2016 49.5
Jul 2016 52.6 Jan 2016 48.2
Jun 2016 53.2 Dec 2015 48.0
May 2016 51.3 Nov 2015 48.4
Apr 2016 50.8 Oct 2015 49.4
Mar 2016 51.8 Sep 2015 50.0
Average for 12 months – 50.2
High – 53.2
Low – 48.0

New Orders

ISM®’s New Orders Index registered 49.1 percent in August, which is a decrease of 7.8 percentage points when compared to the 56.9 percent reported for July, indicating contraction in new orders for first time since December 2015 when the New Orders Index registered 48.8 percent. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The six industries reporting growth in new orders in August — listed in order — are: Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Fabricated Metal Products. The nine industries reporting a decrease in new orders during August — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Machinery; Primary Metals; and Paper Products.

New
Orders %
Better %
Same %
Worse
Net
Index
Aug 2016 22 52 26 -4 49.1
Jul 2016 27 58 15 +12 56.9
Jun 2016 31 51 18 +13 57.0
May 2016 32 51 17 +15 55.7

Production

ISM®’s Production Index registered 49.6 percent in August, which is a decrease of 5.8 percentage points when compared to the 55.4 percent reported for July, indicating contraction in production in August and its lowest reading since August 2012 when the Production Index registered 49.5. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The eight industries reporting growth in production during the month of August — listed in order — are: Printing & Related Support Activities; Chemical Products; Primary Metals; Computer & Electronic Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products. The eight industries reporting a decrease in production during August — listed in order — are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Transportation Equipment; Furniture & Related Products; Machinery; Paper Products; and Textile Mills.
Production %
Better %
Same %
Worse
Net
Index
Aug 2016 19 59 22 -3 49.6
Jul 2016 25 58 17 +8 55.4
Jun 2016 28 55 17 +11 54.7
May 2016 29 52 19 +10 52.6

Employment

ISM®’s Employment Index registered 48.3 percent in August, a decrease of 1.1 percentage points when compared to the July reading of 49.4 percent, indicating contraction in employment in August for the second consecutive month. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the five industries reporting employment growth in August are: Printing & Related Support Activities; Paper Products; Primary Metals; Computer & Electronic Products; and Nonmetallic Mineral Products. The nine industries reporting a decrease in employment in August — listed in order — are: Apparel, Leather & Allied Products; Transportation Equipment; Plastics & Rubber Products; Furniture & Related Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Machinery; Chemical Products; and Textile Mills.
Employment %
Higher %
Same %
Lower
Net
Index
Aug 2016 16 65 19 -3 48.3
Jul 2016 17 68 15 +2 49.4
Jun 2016 22 58 20 +2 50.4
May 2016 20 62 18 +2 49.2

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in August as the Supplier Deliveries Index registered 50.9 percent, which is 0.9 percentage point lower than the 51.8 percent reported for July. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The six industries reporting slower supplier deliveries in August — listed in order — are: Nonmetallic Mineral Products; Transportation Equipment; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; and Chemical Products. The four industries reporting faster supplier deliveries in August are: Paper Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products. Eight industries reported no change in supplier deliveries in August compared to July.

Supplier
Deliveries %
Slower %
Same %
Faster
Net
Index
Aug 2016 8 86 6 +2 50.9
Jul 2016 10 85 5 +5 51.8
Jun 2016 12 84 4 +8 55.4
May 2016 13 82 5 +8 54.1

Inventories*

The Inventories Index registered 49 percent in August, which is a decrease of 0.5 percentage point when compared to the 49.5 percent reported for July, indicating raw materials inventories are contracting in August for the 14th consecutive month. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The four industries reporting higher inventories in August are: Wood Products; Apparel, Leather & Allied Products; Transportation Equipment; and Nonmetallic Mineral Products. The 11 industries reporting lower inventories in August — listed in order — are: Textile Mills; Chemical Products; Fabricated Metal Products; Primary Metals; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Machinery; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Plastics & Rubber Products.
Inventories %
Higher %
Same %
Lower
Net
Index
Aug 2016 18 62 20 -2 49.0
Jul 2016 19 61 20 -1 49.5
Jun 2016 19 59 22 -3 48.5
May 2016 14 62 24 -10 45.0

Customers’ Inventories*

ISM®’s Customers’ Inventories Index registered 49.5 percent in August, which is 1.5 percentage points lower than the 51 percent reported in July, indicating that customers’ inventory levels are considered too low in August following three consecutive months at 50 or above of customer inventories being considered too high.

The five manufacturing industries reporting customers’ inventories as being too high during the month of August are: Petroleum & Coal Products; Furniture & Related Products; Transportation Equipment; Machinery; and Plastics & Rubber Products. The eight industries reporting customers’ inventories as too low during August — listed in order — are: Textile Mills; Primary Metals; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products.

Customers’
Inventories %
Reporting %Too
High %About
Right %Too
Low
Net
Index
Aug 2016 54 16 67 17 -1 49.5
Jul 2016 59 13 76 11 +2 51.0
Jun 2016 57 16 70 14 +2 51.0
May 2016 60 16 68 16 0 50.0

Prices*

The ISM® Prices Index registered 53 percent in August, which is a decrease of 2 percentage points when compared to the 55 percent reported for July, indicating an increase in raw materials prices for the sixth consecutive month. In August, 19 percent of respondents reported paying higher prices, 13 percent reported paying lower prices, and 68 percent of supply executives reported paying the same prices as in July. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Of the 18 manufacturing industries, the nine industries that reported paying increased prices for its raw materials in August — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Transportation Equipment; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; and Nonmetallic Mineral Products. The three industries reporting paying lower prices during the month of August are: Electrical Equipment, Appliances & Components; Furniture & Related Products; and Food, Beverage & Tobacco Products. Six industries listed no change in prices in August compared to July.
Prices %
Higher %
Same %
Lower
Net
Index
Aug 2016 19 68 13 +6 53.0
Jul 2016 22 66 12 +10 55.0
Jun 2016 27 67 6 +21 60.5
May 2016 34 59 7 +27 63.5

Backlog of Orders*

ISM®’s Backlog of Orders Index registered 45.5 percent in August, a decrease of 2.5 percentage points when compared to the July reading of 48 percent, indicating contraction in order backlogs for the second consecutive month. Of the 88 percent of respondents who reported their backlog of orders, 18 percent reported greater backlogs, 27 percent reported smaller backlogs, and 55 percent reported no change from July.

The four industries reporting growth in order backlogs in August are: Printing & Related Support Activities; Petroleum & Coal Products; Computer & Electronic Products; and Fabricated Metal Products. The 12 industries reporting a decrease in order backlogs during August — listed in order — are: Wood Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Furniture & Related Products; Transportation Equipment; Primary Metals; Paper Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products.

Backlog of
Orders %
Reporting %
Greater %
Same %
Less
Net
Index
Aug 2016 88 18 55 27 -9 45.5
Jul 2016 86 16 64 20 -4 48.0
Jun 2016 89 24 57 19 +5 52.5
May 2016 85 17 60 23 -6 47.0

New Export Orders*

ISM®’s New Export Orders Index registered 52.5 percent in August, the same reading as in July, indicating growth in new export orders for the sixth consecutive month.

The eight industries reporting growth in new export orders in August — listed in order — are: Wood Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Paper Products. The six industries reporting a decrease in new export orders during August — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; and Transportation Equipment.

New Export
Orders %
Reporting %
Higher %
Same %
Lower
Net
Index
Aug 2016 78 16 73 11 +5 52.5
Jul 2016 76 14 77 9 +5 52.5
Jun 2016 79 14 79 7 +7 53.5
May 2016 75 15 75 10 +5 52.5

Imports*

ISM®’s Imports Index registered 47 percent in August, which is 5 percentage points below the July reading of 52 percent. This month’s reading indicates contraction in imports following four consecutive months of the Imports Index registering 50 percent or above.

The four industries reporting growth in imports during the month of August are: Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Machinery. The nine industries reporting a decrease in imports during August — listed in order — are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Textile Mills; Primary Metals; Plastics & Rubber Products; Paper Products; Transportation Equipment; Miscellaneous Manufacturing; and Fabricated Metal Products.
Imports %
Reporting %
Higher %
Same %
Lower
Net
Index
Aug 2016 83 8 78 14 -6 47.0
Jul 2016 80 14 76 10 +4 52.0
Jun 2016 84 11 82 7 +4 52.0
May 2016 83 14 72 14 0 50.0
* The Inventories, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.
Buying Policy

Average commitment lead time for Capital Expenditures decreased in August by 3 days to 129 days. Average lead time for Production Materials decreased by 4 days to 60 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased by 2 days to 29 days.

Percent Reporting

Capital
Expenditures Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Aug 2016 22 6 13 19 24 16 129
Jul 2016 20 8 14 18 22 18 132
Jun 2016 23 7 11 15 28 16 131
May 2016 24 8 12 15 25 16 127

Production
Materials Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Aug 2016 15 38 22 15 8 2 60
Jul 2016 12 37 26 15 7 3 64
Jun 2016 15 38 23 15 7 2 59
May 2016 16 35 24 15 7 3 63

MRO
Supplies Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Aug 2016 40 39 13 8 0 0 29
Jul 2016 38 40 15 5 2 0 31
Jun 2016 39 37 17 6 1 0 30
May 2016 41 37 14 7 1 0 30

About This Report

The data presented herein is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. ISM® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

The Manufacturing ISM® Report On Business® is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number for those meeting the criteria for seasonal adjustments (PMI®, New Orders, Production, Employment and Supplier Deliveries) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The PMI® is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries (seasonally adjusted), and Inventories.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI® reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI® above 43.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 43.2 percent, it is generally declining. The distance from 50 percent or 43.2 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM® has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

The Manufacturing ISM® Report On Business® survey is sent out to Manufacturing Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the current month. ISM® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity. ISM® then compiles the report for release on the first business day of the following month.

The industries reporting growth, as indicated in the Manufacturing ISM® Report On Business® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

Responses to Buying Policy reflect the percent reporting the current month’s lead time, the approximate weighted number of days ahead for which commitments are made for Capital Expenditures; Production Materials; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

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About Institute for Supply Management®

Institute for Supply Management® (ISM®) serves supply management professionals in more than 90 countries. Its 48,000 members around the world manage about $1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business®, its highly regarded certification programs and the newly launched ISM Mastery Model™. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Manufacturing ISM® Report On Business® is posted on ISM®’s website at www.ismrob.org on the first business day* of every month after 10:00 a.m. (ET).

The next Manufacturing ISM® Report On Business® featuring the September 2016 data will be released at 10:00 a.m. (ET) on Monday, October 3, 2016.

*Unless the NYSE is closed.