EU Chip Makers Weigh Production Risks Amid Covid-19
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The nation’s manufacturing industry in November contracted for the first time in 36 months, dragged down by declines in production, new orders and raw materials inventory. The Institute for Supply Management‘s PMI—an index of U.S. purchasing managers – fell to 48.6 percent, a decrease of 1.5 percentage points from the October reading of 50.1 percent. Any number above 50 indicates the manufacturing economy is growing; any number below 50 indicates contraction.
“The PMI dropped to contraction range for the first time since November 2012,” said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee. “The drop is tied to the loss of 4 percentage points in new orders [to 48.9 percent]; 3.7 points in production [to 49.2]; and 3.5 points in inventories [to 43.0]. These numbers also hit a 3-year low.”
The data is remarkably similar to that of November 2012, which could be a positive for the industry. Domestic production immediately began growing again in December of 2012 after its dip and continued expanding until this past month. “This year is shaping up a lot like 2012, including the dip below 50 in November,” said Holcomb. “It bounced back up to 50 [in December] and we ended up having a very good year in 2013.” The average PMI for 2015 -- currently at 51.9 –is also tracking 2012’s average.
Nevertheless, sentiment among purchasing managers was gloomy for November. "Bookings and new orders are lower than expected," said a manager in the computer and electronic products segment. The downturns in China and the EU, along with the strong U.S. dollar in foreign markets, also dampened business in November, panelists said.
“My sense is this is still a short-term thing,” said Holcomb. “In [November] 2012 we hit the bottom for that cycle.” Following the recession of 2009 manufacturing began growing again in 2010 and 2011. “The trend line looks like a camel with two humps, and we believe we will see the beginning of the second hump in a month or so.”
A November decline also runs counter to expectations of heavy consumer spending ahead of the holiday gift-giving season. Seasonality is stripped out of the PMI, Holcomb explains, but an uptick will still be driven by consumer spending. “I’m not an economist, but our GNP is heavily weighted in consumer spending which in turn reflects confidence in the economy. We still hear [U.S. manufacturing] fundamentals remain strong; and again, we see that in 2013 and 2014 things were better.”
A bright spot in the November report was an increase in employment from 47.6 percent in October to 51.3 in November. That’s a good sign, said Holcomb, “as most of our panelists can see things out as far as 6 months.” Another positive that is not reflected in the November data is the price of raw materials, which has been declining for 13 months in a row. “That’s good for the short-term; it allows companies to hold on to profit margins and not pass along price increases to customers,” said Holcomb. “That’s a positive and we hope to see more on that when we release our semi-annual update on December 8.”
Of the 18 manufacturing industries tracked by the ISM, five are reporting growth in November in the following order: printing and related support activities; nonmetallic mineral products; miscellaneous manufacturing; food, beverage and tobacco products; and transportation equipment. The 10 industries reporting contraction in November — listed in order — are: apparel, leather and allied products; plastics and rubber products; machinery; primary metals; petroleum and coal products; electrical equipment, appliances and components; computer and electronic products; furniture and related products; fabricated metal products; and chemical products.
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