Manufacturing Growth Continues, While Survey Shows Weak Jobs Outlook

Two recent reports paint a mixed picture on the U.S. manufacturing front.

Aw 1279 2010jobsoutlook

Manufacturing continues to grow—albeit at a slower pace—but the outlook for manufacturing hiring remains weak, according to two separate reports released this week.

Economic activity in the manufacturing sector expanded in October for the 15th consecutive month, and the overall economy grew for the 18th consecutive month, the nation’s supply executives said in the latest Manufacturing ISM Report On Business, released on Nov. 1

The report was issued by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management (ISM, www.ism.ws) Manufacturing Business Survey Committee. “The manufacturing sector grew during October, with both new orders and production making significant gains. Since hitting a peak in April, the trend for manufacturing has been toward slower growth. However, this month’s report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter. Survey respondents note the recovery in autos, computers and exports as key drivers of this growth. Concerns about inventory growth are lessened by the improvement in new orders during October. With 14 of 18 industries reporting growth in October, manufacturing continues to outperform the other sectors of the economy,” Ore said.

The ISM Purchasing Managers Index (PMI) registered 56.9 percent in October, the ISM said, an increase of 2.5 percentage points compared to September’s reading of 54.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Among other results, the ISM also reported growth in manufacturing employment. ISM’s Employment Index registered 57.7 percent in October, which is 1.2 percentage points higher than the 56.5 percent reported in September. This is the 11th consecutive month of growth in manufacturing employment, the ISM said.

Hiring outlook

Despite these numbers, however, the results of a national survey of U.S. manufacturing financial executives released on Nov. 2 painted a less optimistic outlook. According to the survey, conducted by Grant Thornton LLP (www.GrantThornton.com), the U.S. member firm of Grant Thornton International Ltd, only 18 percent of manufacturing respondents plan to increase hiring in the next six months, while 22 percent plan to decrease hiring. In addition, a large majority believe that the best way to create jobs is to cut corporate and personal tax rates and that the U.S. economy will not recover until the second half of 2011 or later.

“These findings are consistent with what we have been hearing from our manufacturing clients,” said Grant Thornton Manufacturing practice leader Walter Gruenes. “It is clear that the strong production gains experienced through the first half of 2010 have slowed significantly (only 2 percent growth in the third quarter) now that inventory re-stocking is complete and government incentive programs have expired (i.e. cash for clunkers, new homebuyer credit and so on). In addition, the indecision stemming from a weak economy and the unknown impact of governmental tax policy and new healthcare, labor and environmental regulation on business and individuals is causing paralysis as it relates to major business decisions such as expansion, expenditures and hiring. Export growth is the one bright spot for manufacturers—growth of 9.5 percent in 2010, which is expected to reach 10 percent in 2011,” Gruenes said.

Grant Thornton LLP conducted the biannual national survey from Oct. 5 through Oct. 15, 2010, with 516 U.S. chief financial officers and senior comptrollers participating, of which 99 were manufacturing companies.
 
Grant Thornton LLP
www.GrantThornton.com

Institute for Supply Management
www.ism.ws

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