Although the pace of growth in the U.S. manufacturing sector cooled down a bit in September, the industry topped off its third consecutive quarter of expansion that month. One of the nation’s leading indexes, the Institute for Supply Management’s PMI, decreased in September by 2.4 percentage points to 56.6 percent. Nevertheless, said Bradley J. Holcomb, chair of the ISM’s Manufacturing Business Survey Committee, the number still reflects good solid growth. Any rating above 50 indicates expansion; any number below 50 reflects contraction.
Holcomb points out that the average PMI for the third calendar quarter of 2014 – 57.6 percent -- was higher than Q2, which in turn was above the Q1 level. The purchasing managers making up the ISM’s survey base continue to be optimistic about 2014.
That sentiment was echoed by another survey of small to midsized purchasing managers conducted by PrimeAdvantage, a U.S buying consortium. Forty-nine percent of respondents to PrimeAdvantage’s annual survey reported they expect revenues to increase in the second half of 2014 compared to the first half. Of these, 22 percent anticipate revenue growth will be more than 10 percent greater this year than last year, while 28 percent expect revenue growth of up to 10 percent.
“Our members are making some of the highest projections for the next six months that we’ve ever seen,” said Louise O’Sullivan, founder, president and CEO of Prime Advantage, in a release. "Revenue forecasts, capital expenditure plans and labor force expectations are all at record levels. Our members are becoming more energy efficient, more sustainable and more technologically advanced. This is all a true testament to the invaluable supply chain partnerships and resources created through our group’s collaboration as we march in unison to make an everlasting impact in the world of manufacturing that will be built upon for generations to come.”
Nevertheless, U.S. manufacturers see a number of clouds on the horizon. Among small and midsized manufacturers, the cost of raw materials remains the leading concern. Forty-one percent of PrimeAdvantage members cite these prices as their leading worry for the second half of 2014. Although raw materials prices have risen slightly this year – by 1.5 percent in September according to the ISM -- its base is less concerned. For the past several months, comments from the ISM’s survey have cited improving business conditions, although geopolitical events have some sectors worried.
Processes and efficiencies within purchasing were the second greatest purchasing concern (38 percent) among PrimeAdvantage members, followed by the cost of baseline materials such as oil and gas (17 percent). Small and midsize manufacturers are also feeling some cost pressures: healthcare costs remain their second greatest concern (21 percent), though down from a year ago, followed by labor costs (18 percent), which have been steadily climbing since February 2013. Forty two percent of PrimeAdvantage's members expect to increase their capital spending this year.
Both the ISM and PrimeAdvantage respondents are seeing a shortage in qualified labor. The ISM’s employment index in September registered 54.6 percent, down 3.5 percent from August’s level of 58.1. Within the machinery sector – one of 18 sectors the ISM surveys -- one commentator said the “search continues for good machinists and electrical engineers.” Fifty three percent of PrimeAdvantage respondents cited a lack of qualified workers as their top barrier to growth over the next 12 months. Legislative and regulatory pressures (45 percent) were second, followed by foreign competition (30 percent).
PrimeAdvantage’s survey was conducted in August among purchasing executives and professionals from companies with annual revenues ranging between $10 million and $4 billion, of which the majority ranges between $20 million and $500 million. The ISM’s survey is sent monthly to its base of members.