The Institute for Supply Management announced on Tuesday that its Purchasing Manager’s Index (PMI) for Manufacturing index rose 1.5 percentage points to 54.7 in December, its highest level in two years and up from 53.2 in November.
This is great news- let’s look at some details to find out why:

  • New Orders component– new orders rose 7.2 percentage points to 60.2 – their highest level since November 2014
  • Strength in Employment component– employment rose 0.8 percentage point to 53.1 – the highest since June 2015
  • And strength in the Production component-production improved to 60.3- very unusual outcomes for Manufacturing in December.

This is an unexpectedly solid report showing Manufacturing industry performance stronger in December than in November.

Highest in 2 years and up 1.5 points over November 2016
Highest in 2 years and up 1.5 points over November 2016

Here is why we see this as a bellwether for a great 2017 for our precision machining companies.

  • U.S. Light Vehicle (Auto) Sales set annual sales record according to the Wall Street Journal and reports we heard from online videos from AUTO NEWS. “A total of 17.55 million vehicles were sold in 2016, roughly 60% of which were classified as light trucks” according to the Wall Street Journal.
  • 2016 sales volume was up ~ 700,000 light vehicles, according to reports from Auto News
  • The average age of the U.S. Light Vehicle Fleet in 2016 was a record 11.6 years, According to Statista online, 

There is still plenty of reason to expect demand for light cars and trucks to be sustained based on the average age of the U.S. Fleet and the current low unemployment rate reported by the Federal government. Knowing that Automotive is the precision machining industry’s most heavily served market convinces us that these numbers reported by ISM, WSJ, Auto News and Statista bode well for our precision machining shops in 2017. I hope that you are preparing for success, not for hunkering down in 2017.
Happy New Year, indeed!


Link to ISM December 2016 report
Statista Age of Light Vehicles in U.S.

Calculated Risk December ISM Post and Chart

Economic activity in the manufacturing sector contracted in February for the fifth consecutive month, while the overall economy grew for the 81st consecutive month, according to the latest Manufacturing ISM® Report On Business®.

Graph of ISM PMI index january 1963 through February 2016
Graph Courtesy Calculated Risk Blog

We admit that manufacturing is one definitive pocket of recession- 5 consecutive months of contracting economic activity is by definition “recessionary.”

Strong consumer balance sheets and strong corporate balance sheets seem to be keeping the general economy growing, with February being the 81st consecutive month of general economic expansion according to ISM.
Besides, there has never been a recession in the United States unless and until the yield spread has inverted. Of course, there was never before such a situation of somuch foreign purchase of US Treasury debt either…
Our January Business trends report showed many respondents with huge sales increases over December 2015, and many with no significant pick up.
We think that we have, as manufacturers, stronger months ahead of us in 2016.
Calculated Risk Blog

“The October PMI® registered 59 percent, an increase of 2.4 percentage points from September’s reading of 56.6 percent, indicating continued expansion in manufacturing. The New Orders Index registered 65.8 percent, an increase of 5.8 percentage points from the 60 percent reading in September, indicating growth in new orders for the 17th consecutive month. The Production Index registered 64.8 percent, 0.2 percentage point above the September reading of 64.6 percent. The Employment Index grew for the 16th consecutive month, registering 55.5 percent, an increase of 0.9 percentage point above the September reading of 54.6 percent. Inventories of raw materials registered 52.5 percent, an increase of 1 percentage point from the September reading of 51.5 percent, indicating growth in inventories for the third consecutive month. Comments from the panel generally cite positive business conditions, with growth in demand and production volumes.”-  Bradley J. Holcomb, Institute for Supply Management® (ISM®

Highest level since  early 2011
Highest level since early 2011

Outstanding October
Sixteen of eighteen manufacturing industries reported growth in October.
We were especially pleased to see New Orders up 5.8 points to 65.8.
The October ISM PMI numbers reflected the  PMPA’s Business Trends results for September:

“The PMPA Business Trends Index for September increased 2 points (1.7%) from 117 to 119. This is the highest value for

September in the 5 years since the recession’s low of 83. September 2014’s 119 is 7 points, or 6.25% higher than the value for

September 2013. (On PMPA’s recently completed Shop Hourly Wage Survey, we determined that sales had increased 6% year over

year for those shops reporting in both 2013 and 2014.) The Sales Index average, year to date, is 121.9, up 4.9 points from the 2013

calendar year average. Six of the eight months this year have had an index value higher than that of the prior year. “

PMPA member companies continue to report strong sales and increasing lead times as the North American manufacturing economy continues to show its strength.

Now is a great time to be engaged in precision machining as advanced manufacturing continues to grow here in North America.

Graph courtesy Calculated Risk Blog

According to the latest ISM report for May 2013, manufacturing is contracting. The ISM index has fallen to its lowest level since June 2009. According to Dr. Ken Mayland, the decline of the PMI below 50 is a surprise to almost everyone.

But it is a continuation of a trend- this is the third consecutive month of decrease.
But it is a continuation of a trend- this is the third consecutive month of decrease.

“Economic activity in the manufacturing sector contracted in May for the first time since November 2012, and the overall economy grew for the 48th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business,® according to Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee.”

Here are the bullet points:

  • ISM PMI fell 1.7 points to 49- contraction!
  • PMI at lowest level since June 2009 when it was 45.8%- Let’s hope we don’t go there!
  • New Orders index declined by 3.5% to 48.8%
  • Production Index declined by 4.9% to 48.6%

10 of the 18 manufacturing industries reported growth in May in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Wood Products; Furniture & Related Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Machinery; and Paper Products.

Precision Machining is a subset of Fabricated Metals, which was ranked number three on this list.

Silver Lining Department

“ISM’s Employment Index registered 50.1 percent in May, which is 0.1 percentage point lower than the 50.2 percent reported in April. This month’s Employment index indicates growth in employment for the 44th consecutive month, but at a slightly slower rate. An Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.”

Manufacturers are still looking for to pick up people with skills who can add value.
Graph Courtesy Calculated Risk Blog