Manufacturing recorded its strongest quarter in two years, according to the Purchasing Manager’s Index (PMI) from Markit Economics.
The U.S. Manufacturing PMI reading for March 2013, released in April, was 54.6, compared to 54.3 for February 2013 and 54.0 in December 2012. The PMI reading for the first quarter of 2013 was 54.9 which is the strongest quarterly performance in two years. A PMI index reading above 50.0 signals an increase or improvement on the prior month, while readings below 50.0 indicate a decrease. This is good news for manufacturing throughout the United States. The index has been improving each month of 2013.
The key factors leading to the expansion of the manufacturing industry in the first quarter of 2013 were output, new orders, new export orders and job creation spurred by increased business activity. The manufacturing sector in the U.S. has been one of the key drivers in the recovery of the economy with output growing by up to 2 percent in the first quarter compared to fourth quarter of 2012. Overall this led to approximately 15,000 additional jobs being created.
One of the more interesting indicators included in the PMI analysis is “suppliers’ delivery times.” This indicator continues to be the lowest performing indicator and it is continuing to decline, which means that U.S. manufacturers are continuing to see longer required lead times on ordering supplies. This impacts the expansion of the manufacturing industry as the ability to obtain raw materials can slow output and the ability to fulfill orders on time.
Both large (over 500 employees) and small (less than 100 employees) manufacturing companies posted strong increases in new orders, output and employment during the latest survey period. For large manufacturers, the rate of growth has eased slightly but for small manufacturers there was a significant rise in production, the strongest for almost three years, which was spurred by new order growth that is the highest in the previous 12 months.
Overall, this strong indicator is positive for U.S. manufacturers as the country is working through national budget issues, sequestration, the effect of healthcare reform, and the future of the tax code. One political issue to keep your eye on is the indication that the White House has a renewed interest in expanding trade agreements in Europe and China, which hopefully will lead to increased export orders. Overall, 2013 is shaping up to be a great year for the manufacturing industry, with many reasons to be optimistic.
PMI is a good report for manufacturers to pay attention to as an economic indicator. The PMI tracks many variables such as manufacturing output, new orders, stock levels, employment and prices in an effort to determine the current rate of expansion in the manufacturing, construction, retail and service sectors. The manufacturing PMI is based on monthly surveys of over 600 companies in the United States. It can help your company in understanding the U.S. and global economic environment, which should be considered in strategic planning and growth strategies. Dean Dorton Allen Ford analyzes this index on a monthly basis to ensure we stay current on issues affecting our manufacturing clients.
For more information on the PMI and to review the related underlying data, please visit the Markit Economics website at www.markiteconomics.com. A Dean Dorton Allen Ford manufacturing industry team member would be happy to discuss its implications for your business. For more information, please contact Lance Mann at firstname.lastname@example.org.