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Metals & MFG Outlook – March 2016
I. Cover Story: A TOUGH ROW TO HOE?
II. NORTH AMERICAN PERSPECTIVE
III. U.S. FORGING INDUSTRY
IV. MANUFACTURING TALK RADIO
VI. ASIA OUTLOOK
VII. SOUTH AMERICA
VIII. CREDIT MANAGERS INDEX
IX. THE MANUFACTURING SCENE
X. THE FINAL WORD
The reports of the poor condition of the manufacturing sector have been greatly exaggerated, and its size relative to the overall economy has been greatly underestimated and understated. See Manufacturing Scene later in this newsletter.
The government’s measure of the size of the manufacturing sector begins with and ends with the shop floor. If you are the C-suite of a large industrial, you are counted in a separate standard industry classification (SIC) code related to the services sector – even though you work for a manufacturer, especially if that manufacturer makes goods and also provides services.
So, the relative health of the industry is masked in government calculations, much like most things the government counts and the way they count them are screwy. The SIC codes were devised in the 1930’s and it appears that the group of codes used to calculate the manufacturing sector are the same group of codes used to calculate its’ size relative to the overall economy then and now. Thus, manufacturing is calculated as 12% of the overall economy by the U.S. government.
Industry associations and consultants calculate that it is as much as 33% of the U.S. economy when you count employees from the C-suite all the way through to the loading dock.
Then there is the multiplier effect where one dollar in manufacturing creates another somewhere else in the overall economy. The government estimates that ratio to be $1:$1.4 while industry analysts calculate it to be as much as $1:$3.4, which is a startling difference.
If you need proof of the larger numbers, consider this – manufacturing has led the U.S. economy out of every recession since 1940. Manufacturing begins hiring 6 to 9 months before goods can be made available to consumers, and consumers are 70% of the purchasers of goods in the U.S.; business and government purchasing accounts for the remaining 30%. Manufacturing employment is a leading indicator for both economic expansion and economic contraction because they are working orders that take 6 to 9 months to produce. If their order books aren’t full months into the future, then employment will be curtailed.
Look around you. We doubt you are living in a house, driving a car, wearing clothes, using eating utensils at a table, carrying devices, sitting at a desk on a chair in a building, using machines manufactured by the services sector. No slight to the services sector, but you are surrounded by manufactured goods. So how could it possibly be that manufacturing is only 12% of the U.S. economy with a multiplier effect of only 1:1.4? It just doesn’t make sense, unless you happen to measure it using a formula that hasn’t been updated since World War II.
In this issue, as in every issue, you will read about the Purchasing Manager’s Index number that is calculated by the Institute for Supply Management and released around 10 a.m. on the first business day of each month, and a number that the government anxiously awaits because it is a reliable indicator, and has been for decades, of the health of the manufacturing sector.
Yes, the number has been just below 50 for several months. No, that is not an indicator that the manufacturing sector is in recession. No, the manufacturing sector is not teetering on the edge of recession. Yes, the non-manufacturing indicator has been softer the last two months, but it is above 50, and there are signs of strength in both the recent reports.
We trust you will enjoy our synopsis of several of the organizations that report of the manufacturing sector. It isn’t doom and gloom. At the moment, the manufacturing sector is burning off excess inventory and signs of growth are now showing up as spring approaches and things begin to bloom.
Lewis A. Weiss
I. COVER STORY: A TOUGH ROW TO HOE
by Royce Lowe
It all seems to be a bit of a struggle these days in the global manufacturing sector. To use a football analogy, we might liken it to grinding out the yards on a muddy field. And that’s where things are reasonably good. Elsewhere, as in Latin America, the situation could be described as somewhere between dire and catastrophic.
The U.S. manufacturing economy showed encouraging signs in February as a number of the major indices were starting to push the PMI back over the 50 mark. Europe is pulling up no trees at all these days, neither is China. But we feel things will get better there.
Crude steel production is down seven percent on the year, aluminum production is stable with prices threatening to rise, and there has been a slight 3 percent increase in the price of some grades of iron ore. Meanwhile, the U.S. is slapping huge anti-dumping duties on a wide range of (mostly Chinese) steel products.
Regardless of all and any bad economic news, people in the U.S., Canada and Europe are buying new cars and light trucks like there’s no proverbial tomorrow. Not to speak of China, where an ordinary sales month sees two and a half million vehicles leaving the showrooms.
The PMI figure from the Institute of Supply Management moved up from January’s 48.2 percent to 49.5 percent in February, representing contraction in manufacturing for the fifth consecutive month although there was growth in the overall economy for the 81st consecutive month. There are several strong positives in the ISM report summarized in Section II below.
The Markit PMI for the U.S. manufacturing sector moved down from January’s 52.4 percent, to 51.3 percent in February. Markit, in a somewhat gloomy report, speaks of the weakest rise in manufacturing output since October 2013. Production volumes rose at the slowest pace for 28 months, and job growth to a five-month low. Clients delayed spending decisions in February amid caution about the business outlook. There was a weak demand from energy sector clients.
The five ISM components are equally weighted at 20 percent each. The Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.
According to the Association for Manufacturing Technology, the U.S. Manufacturing Technology Orders report (USMTO) for December 2015, the most recent month for which data was available which includes both machine tool orders and manufacturing technology orders, showed that order values grew 20.4% compared to the prior month, according to AMT – The Association For Manufacturing Technology. For all of 2015, the year’s total orders were down 17.4% compared to 2014. While the month-to-month gain seemingly indicates an upturn for the manufacturing technology market, it is important to note that the average November-to-December gain since 2010 has been 22.4% – meaning that the end of 2015 came in slightly below average. This data is a reliable leading economic indicator as manufacturing industries invest capital in metalworking equipment and technology to increase capacity and improve productivity.
The Bureau of Economic Analysis came out with its ‘second’ estimate, based on more complete source data, for the annual rate of Real GDP growth in the fourth quarter of 2015, placing it at 1.0 percent. The figure for the third quarter of 2015 was 2.0 percent. The Real GDP is the value of goods and services produced by the nation’s economy, less the value of the goods and services used in production, adjusted for price changes.
The Dun and Bradstreet Economic Health Index for February estimates that 193,000 new non-farm jobs were added to U.S. payrolls in the month, with gains in all sectors, but “in much muted numbers compared to last month” in the manufacturing sector.
The D and B Small Business Health Index (SBHI) fell 0.8 points in the month of February, a fourth consecutive monthly slide. Only construction looks healthy. The SBHI measures small business performance through payment patterns and credit use.
GALLUP’s U.S. Economic Confidence Index averaged -13 in February, within the narrow range of -14 to -11. The job creation index ended February at +30.
World crude steel production for the 66 reporting countries for the month of January 2016 was 127.72Mt, down 7.1 percent from the January 2015 figure of 137.52Mt. Capacity utilization for January 2016 was at 66 percent, slightly up from December 2015’s 65.2 figure, but down from January 2015’s figure of 71 percent.
U.S. crude steel production for January 2016 was 6.62Mt, down 8.8 percent from the January 2015 figure of 7.21Mt.
Primary Global Aluminum Production in January 2016 was 4.726 million tonnes. Of this total, 2.480 million tonnes, over 52 percent, was produced in China. The Gulf Corporation Council (GCC) produced 430,000 tonnes, North America 368,000 tonnes, Western Europe 321,000 tonnes and Eastern and Central Europe 338,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘the Big Eight’ for February 2016.
|The ‘Big Eight’||February ’16||February ’15||YTD % change|
|Total new cars and light trucks||1344225||1257619||6.9|
CARS LIGHT TRUCKS TOTAL
FEB 2015 573,633 683,986 1,257,619
FEB 2016 572,398 771,827 1,148,057
-0.2% +12.8% + 6.9%
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 least 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.
II. NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 49.5 percent in February, up, significantly it may be said, from January’s 48.2 reading, representing the fifth consecutive month of mild contraction in manufacturing and growth in the overall economy for the 81st consecutive month. Of the 18 manufacturing industries, nine industries are reporting growth in February, in order: Textile Mills; Wood Products; Furniture & Related Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; and Paper Products. The seven industries reporting contraction in February, listed in order, are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Computer & Electronic Products; Printing & Related Support Activities; Transportation Equipment; Plastics & Rubber Products; and Fabricated Metal Products.
Food, Beverage & Tobacco Products respondents say that things are still a bit sluggish. Fabricated Metal Products personnel say that business seems to be getting better, as witnessed by a healthy 2016 backlog. Chemical Products respondents say that U.S. business demand is solid but that international demand is soft. Computer & Electronic Product respondents say Mobility spend is up. Transportation Equipment personnel say that airlines are still ordering planes and spare parts for plane galleys. Miscellaneous Manufacturing personnel say they are not being impacted by ‘global economic volatility’ or oil prices and that business is strong and growth projections remain the same. Petroleum & Coal Products report that low oil prices and reduced activity continue to affect their business. Wood Products say the market is starting to trend up with spring coming. Machinery reports a very strong product demand, good material availability and depressed commodity prices. Furniture & Related Products respondents report a stronger-than-expected order book.
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 ISM New Orders Index for February, at 5 percent, was unchanged from January’s figure, representing growth in new orders for the second consecutive month. The twelve industries reporting growth in new orders in February, listed in order, are: Textile Mills; Wood Products; Furniture & Related Products; Machinery; Plastics & Rubber Products; Petroleum & Coal Products; Non-metallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Transportation Equipment; Chemical Products; and Fabricated Metal Products. The four industries reporting a decrease in new orders during February are: Apparel, Leather & Allied Products; Paper Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.
- The ISM Production Index is at 52.8 percent in February, up 2.6 percentage points from January’s 50.2 percent reading, representing growth in production for the second consecutive month. Ten industries reported growth in production during the month of February, namely, listed in order, Textile Mills; Wood Products; Miscellaneous Manufacturing; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Machinery; and Fabricated Metal Products. The five industries reporting a decrease in production during February are: Apparel, Leather & Allied Products; Non-metallic Mineral Products; Paper Products; Transportation Equipment; and Computer & Electronic Products.
- The ISM Employment Index for February registered a reading of 48.5 percent, an increase of 2.6 percentage points on January’s 45.9 reading, representing a third consecutive month of less hiring in the Employment Index. Six of the 18 manufacturing industries reported employment growth in February, in order, Textile Mills; Furniture & Related Products; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products; and Primary Metals. Eight industries reported a decrease in employment in February, namely, listed in order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Plastics & Rubber Products; Machinery; and Chemical Products.
- The ISM Supplier Deliveries Index indicates that the delivery performance of suppliers to manufacturing organizations was faster in February than in January, as the Supplier Deliveries Index registered 49.7 percent, 0.3 percentage points lower than January’s 50.0 reading. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries. Five industries reported slower deliveries in February, namely Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Fabricated Metal Products. The six industries reporting faster supplier deliveries during February, in order, are: Primary Metals; Petroleum & Coal Products; Computer & Electronic Products; Plastics & Rubber Products; Miscellaneous Manufacturing; and Transportation Equipment. Seven industries reported no change in supplier deliveries in February compared to January.
- The ISM Inventories Index, at 45.0 percent for February, is 1.5 percentage points higher than January’s 43.5 percent reading, indicating a contraction of raw materials inventories in February for the eighth consecutive month. Six industries reported higher inventories in February, namely: Wood Products; Electrical Equipment, Appliances & Components; Paper Products; Chemical Products; Transportation Equipment; and Food, Beverage & Tobacco Products. The nine industries reporting lower inventories in February, listed in order, are: Plastics & Rubber Products; Petroleum & Coal Products; Machinery; Printing & Related Support Activities; Fabricated Metal Products; Furniture & Related Products; Primary Metals; Computer & Electronic Products; and Miscellaneous Manufacturing.
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 47.0 percent in February, 4.5 percentage points below January’s reading of 51.5 percent, meaning that customers’ inventories are considered to be too low after six consecutive months of being considered too high. Three manufacturing industries reporting customer inventories as being too high in February are Apparel, Leather & Allied Products; Furniture & Related Products; and Fabricated Metal Products. The eight industries reporting customers’ inventories as too low during February, listed in order, are: Primary Metals; Textile Mills; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Machinery. Seven industries reported no change in February compared to January.
- The ISM Prices Index registered 38.5 percent in February, which is 5 percentage points higher than January’s 33.5 percent reading, indicating a decrease in raw material prices for the 16th consecutive month. In February 9 percent of respondents reported paying higher prices, 32 percent lower and 59 percent the same prices as in January. Of the 18 manufacturing industries, only Fabricated Metal Products reported paying increased prices for its raw materials in February. The 15 industries reporting paying lower prices during the month of February, listed in order, are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Textile Mills; Chemical Products; Non-metallic Mineral Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Paper Products; Machinery; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Primary Metals; Miscellaneous Manufacturing; Transportation Equipment; and Computer & Electronic Products.
Up in Price in February were: Aluminum*; Polypropylene; Stainless Steel*; Steel (2) * and Steel – Hot Rolled*
Down in Price in February were: Aluminum* (15); Aluminum Products; Copper (4); Copper-Based Products; Corrugated Boxes; Diesel (3); Gasoline (3); Natural Gas; Nickel (8); Oil (3); Oil-Based Products; PET Resin; Propylene; Stainless Steel* (16); Steel* (8) Steel – Hot Rolled (5); and Steel Products.
In Short Supply in February: None (4)
Note: The number of consecutive months the commodity is listed is indicated after each item. *Reported both up and down in price.
- The ISM Backlog of Orders Index was at 48.5 percent in February, 5.5 percentage points up on the January reading of 43.0 percent, representing the ninth consecutive month in contraction of order backlogs. Of the 86 percent of respondents who measure their backlogs, 19 percent reported greater backlogs, 22 percent smaller backlogs and 59 percent no change from January. Five industries reported an increase in order backlogs in February, namely: Textile Mills; Furniture & Related Products; Machinery; Transportation Equipment; and Fabricated Metal Products. The six industries reporting a decrease in order backlogs during February, listed in order, are: Apparel, Leather & Allied Products; Paper Products; Food, Beverage & Tobacco Products; Chemical Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products. Seven industries reported no change in order backlogs in February compared to January.
- The ISM New Export Orders Index was at 46.5 percent for February, 0.5 percentage points down on January’s reading. This represents contraction in new export orders for the second consecutive month. The five industries reporting growth in new export orders in February, listed in order, are: Primary Metals; Printing & Related Support Activities; Miscellaneous Manufacturing; Machinery; and Fabricated Metal Products. The seven industries reporting a decrease in new export orders during February, listed in order, are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Paper Products; Computer & Electronic Products; Plastics & Rubber Products; and Transportation Equipment. Six industries reported no change in export orders in February compared to January.
- The ISM Imports Index, is at 49.0 percent in February, or 2.0 percentage points lower than January’s 51.0 reading, representing contraction in imports. This represents growth in imports following three consecutive months of contraction. Four industries reported growth in imports during the month of February, namely, listed in order : Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products. The seven industries reporting a decrease in imports during February, listed in order, are: Paper Products; Apparel, Leather & Allied Products; Non-metallic Mineral Products; Fabricated Metal Products; Plastics & Rubber Products; Transportation Equipment; and Machinery. Six industries reported no change in imports in February compared to January.
It was announced in late February that new orders for long-lived manufactured goods rose by 4.9 percent in January to $ 237.5 billion, with the main contribution coming from the civil aviation sector, essentially from Boeing as new aircraft orders rose by 54.2 percent. But even without transportation items, durable goods orders still rose by 1.8 percent in January, which more than compensated for the falls in November and December. This is the best pick up since December 2014. Orders for machinery and computers were up by more than 6 percent.
BOEING is making moves to speak to Iranian carriers about their future needs. A special license will be required by Boeing to complete any sales, but the process seems to be being held up by Federal Government feet dragging. Meanwhile Airbus, with fewer restrictions, has an order for $27 billion from Iran.
MOSHE VARDI, the Director of the Institute for Information at Rice University in Texas, says the time is nigh when machines will be able to outperform humans at almost any task. In other words, he questions what humans will do. There are over 200,000 industrial robots in the country, with numbers increasing, and we have self-driving cars and trucks, autonomous drones for surveillance, fully automatic trading systems, house robots etc………all the way to an inexhaustive list.
Meanwhile Mercedes Benz (see under Eurozone) recently announced a switch to fewer, smaller robots, and Google admitted ‘some responsibility’ when its’ self-driving Lexus SUV was in a 2 m.p.h. (albeit none too serious) collision with a bus.
GENERAL MOTORS joined TOYOTA at the top of the J.D. Power Dependability Rankings on all models except Cadillac.
After taking $121 million from a federal tax credit program, United Technologies of Indiana is sending 2,100 jobs to Mexico. Cardone of Philadelphia, a manufacturer of brake calipers, is sending 1,336 workers south and Dematic of Grand Rapids MI will send 300. It looks like the average wage of $3 per hour in Mexico is sometimes just too hard to resist.
IT’S ELECTRIC CAR TIME……….it is said that in the next few years Tesla, Chevrolet and Nissan plan to sell long-range electric cars in the $30,000 range. It is said, with battery prices recently down by 35 percent, that the 2020s will be the decade of the electric car and that by 2022 electric vehicles will cost the same as their internal-combustion counterparts. It is said that by 2040 electric vehicles will account for 35 percent of all new vehicle sales and that they will cost on average less than $22,000 in today’s dollars. It is said.
Leadership Guru Sydney Finkelstein has a book out called Superbosses: How Exceptional Leaders Nurture Talent to Achieve Market Domination. A very good read, it is said, that stresses the importance of Unusual Intelligence, Extreme Flexibility and Creativity.
CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI saw a very slight increase from January’s 49.3 reading to 49.4 in February, the highest reading since August 2015, on the back of the slowest deterioration in manufacturing conditions for six months. Production levels dropped only slightly in February, and new export orders were up for the fourth consecutive month. Ontario, as usual, was out front with an accelerated upturn, with the steepest deterioration in manufacturing in Alberta and B.C. There were job losses in Alberta, B.C. and Québec.
Canada produced 1.05 Mt of crude steel in January, down 1.2 percent y-o-y.
Light vehicle sales in Canada were up 9.1 percent y-o-y in February, at 119,201 vehicles, a February sales record.
Canada’s Bombardier will build 45 CS300 twin-engine jets for Air Canada, an order that includes options for up to 30 more of the all-new narrow-body aircraft. The order will be worth $C 3.8 billion ($2.76 billion). Meanwhile Justin Trudeau, Canada’s Prime Minister, is considering further aid for the struggling Bombardier, following Québec’s recent help.
The province of Québec, already a big player in global primary aluminum production – thanks to its huge supply of electricity from James Bay – is looking to double its production by 2025. Québec is the world’s fourth largest producer of aluminum at 2.7 million tons per year, most of which is exported. The output is worth $C 7 billion per year and supports over 30,000 jobs in over 1,500 companies.
In February, MEXICO saw its strongest improvement in manufacturing business conditions since May 2015. February saw production growth rebounds helped by the strongest new orders increase since April 2015. There was a solid increase in both new export sales and employment. The February PMI is at 53.1, up from January’s 52.2 reading and the highest recorded since May 2015.
Mexico produced 1.49 Mt of crude steel in January, down 9.0 percent y-o-y.
III. U.S. FORGING INDUSTRY
by Royce Lowe
Alcoa has signed a long-term deal that will amount to over $1.5 billion with GE Aviation, for jet engine components. Alcoa will supply advanced nickel-based super alloy, titanium and aluminum components for a broad range of GE engine programs. Alcoa’s advanced-manufacturing capabilities will produce parts at several facilities, including those in Indiana, Michigan, Virginia, New Jersey, Texas and Connecticut, as well as at plants in France and Canada.
Timken Steel has developed a new process for the manufacture of high- pressure tubing (HPT) for use in the production of low-density polyethylene (LDPE). In Canton, Ohio, Timken Steel’s SBQ is forge-rolled and heat treated; it is then sent to Timken Steel Material Services in Houston for boring and honing. The company says that HPT that took more than a year to produce now takes a matter of months. Smaller lot sizes are also available.
IV. MANUFACTURING TALK RADIO
by Tim Grady
Tune in at mfgtalkradio.com for live shows each Tuesday afternoon at 1:00 p.m. Eastern time for breaking news, economic trends in the manufacturing industry and the latest developments in technology and manufacturing developments.
In March, Tim Grady and Lew Weiss were joined by Senior International Correspondent for Corporate Compliance and Industry Ethics, Dr. Adrianna Sanford, to discuss the Apple vs FBI stand-off. The FBI may have recently found a way to break Apple’s IOS-9 security and extract information off the San Bernadino Shooter’s phone, but the debate with major technology companies about privacy for its customers in the U.S. and around the world isn’t over yet. Microsoft versus the U.S. Justice Department is still outstanding, and the Apple vs FBI situation may not be over.
On March 7, listeners heard from Drew Greenblatt, Chairman of The National Alliance for Jobs and Innovation (NAJI.org) and Rob McKenna, partner at Orrick, Herrington and Sutcliffe, LLP, co-chair of its Public Policy Group, former Washington State Attorney General talk about how companies can protect their intellectual property and go after IP thieves or abusers – even if they are overseas, using the Attorney General in the home state. Surprised? So were we! Listen to the show to find out how to pursue IP infractions or theft – without the cost of hiring an attorney or risking counter claims. The information on this show alone is worth a year’s pay!
You’ve heard the nonsense talk about a manufacturing recession – listen to Cliff Waldman, Director of Economic Studies at the Manufacturer’s Alliance for Productivity and Innovation Foundation discuss MAPI’s latest economic forecast, plus important research on productivity in manufacturing for the foreseeable future. This is definitely worth an hour of your time as you drive to work or drive home. You can find the podcast at http://mfgtalkradio.com/category/radio-shows/
Then listen to Rosemary Coates, Executive Director of the Reshoring Institute, as she maps out the next evolutionary step in the manufacturing continuum and shares with us the Institute’s commitment to educating the next generation of manufacturers in this process. If you have production overseas, learn how you can bring it back to America with the help of the Reshoring Institute, at https://reshoringinstitute.org
Visit www.mfgtalkradio.com to read the latest industry news – some of the coolest things made in manufacturing from nano to macho!
(PMI) for February, at 51.2, was down to a twelve-month low from January’s 52.3 reading, on the back of slower growth in production, new orders, export business and employment. France and Germany are hovering close to stagnation, and although seven of the eight countries surveyed showed growth, only Austria was up on January.
|Spain||54.1 (55.4)||2-month low|
|Ireland||52.9 (54.3)||24-month low|
|Italy||52.2 (53.2)||12-month low|
|Austria||51.9 (51.2)||4-month high|
|Netherlands||51.7 (52.5)||18-month low|
|Germany||50.5 (52.3)||15-month low|
|France||50.2 (50.0)||2-month high|
|Greece||48.4 (50.0)||3-month low|
Siemens is to help Iran modernize its energy sector. It has been agreed that MAPNA (an Iranian group of energy companies) will acquire technological knowhow to manufacture Siemens gas turbines in Iran and that the parties will cooperate to deliver more than twenty gas turbines and associated generators over the next decade.
Meanwhile Daimler, the world’s largest truck maker, has woken up to the fact that ‘when the west left Iran’ China wasn’t long in taking over as the primary truck supplier. At the time Daimler was supplying 40,000 trucks per year to Iran. The German company is making new overtures.
Germany’s business climate index fell to a 14-month low after retreating for three consecutive months.
‘Robots can’t deal with the degree of individualization and the many variants that we have today.’ Thus Markus Schaefer, Mercedes’s head of production: ‘We’re saving money and safeguarding our future by employing more people.’ This is all about Mercedes’s Sindelfingen plant, its biggest, possibly an unlikely place to question automation’s benefits. This is a place where steel is chewed up at the rate of 1,500 tons per day, to make 400,000 vehicles per year. Mercedes are not thinking of doing away with robots, merely using smaller, more flexible ones that will operate in conjunction with human workers. BMW and VW are reportedly taking a similar route.
VW’s ex CEO apparently missed reading some important information in his weekend mail back in 2014, because there was too much of it – mail that is. Meanwhile not much good news comes out of the world’s second-largest automotive company, except that we all know it will survive without paying its real dues.
West European car sales were up 14 percent in February, with Germany up 12 percent y-o-y to 250,302 units (VW up 4.3 percent); France up 13.0 percent to 166,741 (VW down 1.9 percent); Italy up 27 percent to 172,241 and Spain, still benefitting from a scrappage program that has been extended to mid-year, up 13 percent to 97,650 units.
Crude steel production in Germany in January was at 3.60Mt, down 2.0 percent y-o-y; in Italy 1.80Mt, down 5.3 percent y-o-y; in France 1.15Mt, down 11.9 percent y-o-y and in Spain 1.15Mt, down 9.5 percent y-o-y.
Russia’s crude steel production for January was at 5.55Mt, down 10.6 percent y-o-y, Ukraine’s was 1.94Mt, up 3.6 percent y-o-y.
The UK witnessed its manufacturing PMI at a 34-month low in February, falling from 52.9 in January to 50.8. Production growth slowed significantly in the consumer and investment goods sectors. New export orders were down for the second month in February, with weaker orders from Brazil, mainland Europe, Russia and the U.S.
A referendum has been called for June 23 in the UK to decide whether or not Britain should stay in the European Union. Coincident with this, bosses of some of Britain’s largest and best-known firms signed a letter published in The Times newspaper, saying an exit from the EU would deter investment in the UK. London’s blustery mayor, Boris Johnson, is pro-exit.
The UK produced 0.66Mt of crude steel in January, down 38.4 percent y-o-y.
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) – was in what might be termed stagnation in February, with the reading at 50.0, a 39-month low. This is down from January’s 50.9 level. All major indices, production, new orders, employment and new exports were down on January’s readings. The downturn in emerging nations was at its fastest since September 2015.
Production growth slowed in the U.S., the Eurozone, Japan, the UK and India, and production volumes were down in China, Taiwan, Indonesia, Malaysia, Brazil and Canada.
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New export orders were down in the U.S., China, Japan, Taiwan and the UK and up in the Eurozone, India, Malaysia, Vietnam and Brazil. Employment was down for the first time since September 2015, ending a four-month sequence of modest job creation, with losses mostly observed in emerging nations, with cuts reported by China, Brazil, India, Russia, Malaysia and Indonesia. Employment was also down in the UK and Canada, but up in the U.S., the Eurozone and Japan.
VI. ASIA OUTLOOK
by Royce Lowe
CHINA produced 64.37Mt of crude steel in January, down 7.8 percent y-o-y; Japan 8.77Mt down 2.8 percent y-o-y; India 7.42Mt, down 1.2 percent y-o-y and South Korea 5.67Mt, down 4.5 percent y-o-y. Taiwan produced 1.60Mt in January, down 19.5 percent y-o-y.
The Caixin China manufacturing PMI for February was down to 48.0 percent from January’s 48.4., its lowest level for five months. The month was marked by a continued deterioration in operating conditions for Chinese manufacturers. Both production and new orders declined at slightly faster rates than in January, and there was the quickest reduction in staffing levels since January 2009. Operating conditions have now worsened every month for the past year, but the deterioration rate has remained modest overall. Financial stimulus is awaited in the not-too-distant future in China.
Total vehicle sales in January in China were at 2,500,570 units, down from December 2015’s 2,785,500 units. The January figure is about the same as that of November 2015, but significantly higher than that of October 2015. GM sold 245,690 units in China in February, down 9.3 percent y-o-y, versus a 7.3 percent y-o-y increase in January.
Operating conditions in JAPAN’s manufacturing sector improved in February at the slowest rate since June 2015. Production growth slowed and new orders fell, while employment rose at slower rates. The PMI for February was down from January’s 52.3 reading to 50.1. New export orders dropped for the first time in five months due to reduced volume with China. Japanese car sales, for February 2016 are reported as off 4.6 percent y-o-y.
The INDIAN manufacturing sector showed the strongest upturn in new orders in February since September 2015, with production up at a slower pace. In fact new orders, exports and production were all up in the month, with employment basically unchanged. The Nikkei PMI reading was unchanged from January’s 51.1 reading. Consumer and intermediate goods were the best performers, with some contraction in both production and new orders in the investment goods sector.
In line with his Make in India campaign, Prime Minister Modi says Foreign Direct Investment is up 48 percent since he took power in May 2014. But bureaucracy, complex regulations and poor infrastructure are still preventing India from getting on the road to its full potential.
VII. SOUTH AMERICA
by Royce Lowe
Brazil’s crude steel production for the month of December 2015 was 2.45Mt, a 17.9 percent y-o-y decrease. Brazil’s manufacturing performance is on its way down again, with manufacturing employment falling at its second-fastest pace in almost seven years. There was a further drop in new orders with production contracting at an accelerated rate. Inflation on raw materials is at a record high. February’s PMI, at 44.5, down from January’s 47.4 reading, represents the 13th consecutive month of deterioration in operating conditions. The depreciating real brought in new export orders, on a three-month upward trend in February, but at a modest overall pace.
VIII. FEBRUARY 2016 BUSINESS SURVEY INSIGHTS
by Norbert Ore
The global economy continued to grow in February as 9 of the 17 surveys that we follow are growing. The nine that are growing have an average PMI of 52.1. On a negative note, the JP Morgan Chase Global PMI (50.0, -0.9) failed to grow for the first time since November 2012 when the index printed 49.6. Growth in the Eurozone PMI (51.2, -1.1) is now in its 32nd consecutive month as manufacturing continues its growth trend when compared to other major regions. Germany (50.5, -1.8) remained positive and posted its 15th consecutive month of growth.
The remaining seven Eurozone countries averaged 51.6 percent and were led by Spain (54.2, -1.3) while Greece (48.4, -1.6) was the only EZ country that failed to grow. The UK (50.8, -2.1) registered its 35th consecutive month above the 50 mark. The slowing is showing most in the consumer and durable goods segments. China’s Official Report, the CFLP PMI (49.0, -0.4) continues a slow contraction. More value may be found in the Caixin China General Manufacturing PMI (48.4, -0.4) which registered a rate of contraction equal to the 12-month average. The story of slow contraction in the Caixin Index still seems more believable.
As for North America, Canada (49.4, +0.1) failed to grow for the seventh consecutive month as the rate of decline slowed. Mexico (53.1, +0.9) expanded at a pace slightly above its six-month average of 52.6. The ISM PMI™
According to the Strategas Leading Indicator of Manufacturing report, manufacturing is trying to stabilize; new orders improved and supplier deliveries remain faster, which means suppliers can presently keep up with the lower demand for raw materials.
New Orders – In responding to the mid-month SLIM Survey, the panel indicates February new orders will grow, but at a slower rate compared to January. Specifically, 36 percent indicate new orders are better, 29 percent indicate they are worse, and 35 percent report they are the same. The seasonally adjusted diffusion index is 51.9 percent, -9.3 percentage points lower than the January reading of 61.2. The February new orders reading suggests our panel is seeing new orders growing for the third month in a row.
Supplier Deliveries – February supplier deliveries remain faster and are now below the 50 percent level for seven consecutive months. The diffusion index reads 40.3 percent, which 0.7 percentage points higher than the January reading. In responding to the survey, 6 percent of the survey respondents report slower supplier deliveries, 24 percent report faster supplier deliveries, and 70 percent indicate they are the same. The manufacturing sector continues to struggle on the delivery front.
IX. THE MANUFACTURING SCENE : MANUFACTURING’S REAL IMPACT
Manufacturers Alliance for Productivity and Innovation (MAPI) has recently looked into the impact of manufacturing on the U.S. economy. There are two measures commonly used by the government to measure manufacturing’s overall impact on society. It is suggested that the impact is being seriously underestimated.
The first is the proportion of GDP for which manufacturing accounts, the second the multiplier effect that measures the impact on other industries from an increase in economic activity by a specific industry. Officially, according to national statistics, manufacturing’s proportion of GDP – its annual value-added divided by the value of all goods and services produced in the country – is about 11 percent. The U.S. Department of Commerce says the total requirement manufacturing multiplier is approximately 1.4.
MAPI says that both these figures significantly understate manufacturing’s impact, and to a great extent. It is suggested we should intuitively know this, since we are surrounded by and reliant upon a myriad of manufactured goods in all actions and aspects of our lives. So judging from the sheer volume of ‘stuff’ around us, how could manufacturing represent such a relatively small percentage of the economy.
This is all wrong. New MAPI research, using analysis of national input – output tables for Interindustry Forecasting (Inforum) at the University of Maryland, shows manufacturing’s total value chain actually accounts for about one third of the U.S. GDP, namely three times the impact suggested by narrow official data. In addition, the manufacturing multiplier is 3.6, almost three times as high as the simplistic estimates. In other words, every $1.00 of manufacturing value-added generates $3.60 of value-added elsewhere across the U.S. economy.
There are a number of factors that render the government’s estimates misleading, one being that input into manufacturing-related activities, such as corporate management, R&D and logistics operations are not included when they are located away from the actual manufacturing location. They should be counted.
Government measures capture only the creation of upstream value, including processing of raw materials and intermediate inputs and the production process. The stream is actually much broader and includes associated activities in both the upstream supply chain and the downstream sales chain of manufactured goods sold to final demand.
We can go even further. Final demand goods are those destined for an end user, either exports or goods sold to households, businesses or government. The data for such goods do not include intermediate inputs for nonmanufacturing supply chains, such as gypsum and cement going to the construction supply chain or chemical fertiliser used in the agricultural supply chain. Addition of these data gives a more accurate picture, since but for the production of all these manufactured goods, no value would be generated in manufacturing’s upstream supply chain and downstream sales chain or in the supply chains of other sectors.
We might first consider the upstream activities associated with manufactured goods for final demand: these include the value of all intermediate inputs purchased for use in production, including raw materials and process inputs and services. For example, car manufacturers need steel (and other metals and materials) to make cars, and the steel and metal manufacturers need ore and coal and other agents, all of which need to be transported from place to place. The value-added of all intermediate inputs upstream of the factory that go into manufactured goods destined for final demand is $3.1 trillion.
Then the goods move downstream from the factory through the sales chain, and value must be added for transportation, wholesaling and retailing of the goods. More value again is generated in related services such as rental, leasing, insurance, professional services, maintenance and repair. The value of all these downstream activities combined with the producers’ value, plus the value from manufactured imports, makes up the manufactured goods sales chain. MAPI estimates that downstream added value on manufactured goods for final demand totals $3.6 trillion.
So upstream plus downstream equals $6.7 trillion. Goods designated for non-manufacturing supply chains add $510 billion in value-added to manufacturing’s total. Or a total impact on the economy of 32 percent. Something for a government to get its teeth into!
X. THE FINAL WORD
The figures tell us that the sum of all global manufacturing indices equates to stagnation. There are signs of stirring in certain quarters, not the least of which are in the U.S., where the strength of the manufacturing economy , fragile and vulnerable as it may often appear, will awaken to better things in the not-too-distant future.
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