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Since Cerasis supports manufacturers and distributors, and because manufacturers affect distributors’ businesses so greatly, we feel compelled to talk about the current state of the ISM manufacturing index to not only educate our own customers about how to get prepared for potential changes in their business, but also to educate our now over 10,000 monthly readers who look to us for manufacturing data.

ism manufacturing indexWith the ISM manufacturing index rising again in November for the sixth consecutive month (despite that pesky government shutdown) with the private manufacturing sector digging in, it appears December and 2014 look to be a great time for steady growth for manufacturers and distributors.

When there is steady growth, one of the biggest issues companies face is managing costs, especially transportation costs. Beyond costs, there then comes the logistics of receiving supplies via inbound freight and fulfilling rising orders to avoid any customer delivery backlogs when sending outbound freight. So, as manufacturers expect increases, they will need to make sure they are getting the most out of their logistics and transportation departments by properly managing their freight expinditures, either in-house or by using a third party logistics provider.

ISM Manufacturing Index Increases for 6 Straight Months

ISM Manufacturing Index Last 12 Months
Month PMI™ Month PMI™
Nov 2013 57.3 May 2013 49.0
Oct 2013 56.4 Apr 2013 50.7
Sep 2013 56.2 Mar 2013 51.3
Aug 2013 55.7 Feb 2013 54.2
Jul 2013 55.4 Jan 2013 53.1
Jun 2013 50.9 Dec 2012 50.2
Average for 12 months – 53.4High – 57.3Low – 49.0

The Institute for Supply Management (ISM) manufacturing index has reported that November was yet another gain for its reading on manufacturing. The index rose to 57.3% in the November Manufacturing ISM Report on Business (we highly suggest you read it in full, there are some great quotes on what respondents say!), versus 56.4% the prior month and a consensus estimate of 55.5% from Bloomberg.

In the ISM manufacturing index report, there were some cool quotes of note from respondents, such as:

  • “Seasonal demand has not decreased at the typical pace.” (Primary Metals)
  • “Incoming order rate remaining strong.” (Fabricated Metal Products)
  • “Outlook for the remainder of the year and into 2014 is trending positive.” (Chemical Products)

The long and short of the matter is that the report was higher when it was expected to drop. What readers should likely focus on in this ISM report is that new orders, production and employment, and inventories are growing, while supplier deliveries are slowing.

Perhaps the biggest consideration here is that this marked the sixth consecutive month of economic activity and the ISM manufacturing index expanding in the manufacturing sector. Overall, the economy grew for the 54th consecutive month, based on data from supply executives.

The PMI has also increased progressively each month since June, with November’s reading reflecting the highest ISM manufacturing index PMI in 2013. Individual components were as follows: the New Orders Index increased in November by three percentage points to 63.6%, and the Production Index increased by two percentage points to 62.8%.

The Employment Index registered 56.5%, an increase of 3.3 percentage points, compared to October’s reading of 53.2%. If you view the full report, this was shown to reflect the highest reading since April 2012 when the Employment Index registered 56.8%.

The ISM manufacturing index also noted that 15 of 18 manufacturing industries reported growth in November relative to October. The 15 growth sectors were as follows:

  • Plastics & Rubber Products
  • Textile Mills
  • Furniture & Related Products
  • Primary Metals
  • Food, Beverage & Tobacco Products
  • Paper Products
  • Printing & Related Support Activities
  • Petroleum & Coal Products
  • Miscellaneous Manufacturing
  • Electrical Equipment, Appliances & Components
  • Transportation Equipment
  • Chemical Products
  • Computer & Electronic Products
  • Nonmetallic Mineral Products
  • Fabricated Metal Products

The three industries that reported contraction in November were Apparel, Leather & Allied Products; Wood Products; and Machinery.

Index Series
Direction Rate
PMI™ 57.3 56.4 +0.9 Growing Faster 6
New Orders 63.6 60.6 +3.0 Growing Faster 6
Production 62.8 60.8 +2.0 Growing Faster 6
Employment 56.5 53.2 +3.3 Growing Faster 5
Supplier Deliveries 53.2 54.7 -1.5 Slowing Slower 5
Inventories 50.5 52.5 -2.0 Growing Slower 2
Customers’ Inventories 45.0 47.0 -2.0 Too Low Faster 24
Prices 52.5 55.5 -3.0 Increasing Slower 4
Backlog of Orders 54.0 51.5 +2.5 Growing Faster 2
Exports 59.5 57.0 +2.5 Growing Faster 12
Imports 55.0 55.5 -0.5 Growing Slower 10
OVERALL ECONOMY Growing Faster 54
Manufacturing Sector Growing Faster 6

*Number of months moving in current direction.

Is the ISM Manufacturing Index PMI the ONLY Measure of Manufacturing Growth, or is it Overstating Growth?

Some economists see the ISM manufacturing index PMI report as overstating the rebound in manufacturing; other measures of industrial production and sales have been less glowing. But most of the indicators point to a generally improving trend for American manufacturing, which could give a good boost to U.S. economic and employment growth in 2014, as we stated above.

Manufacturing led the economy out of the Great Recession and helped fuel the jobs recovery that began in 2010, but with Europe’s economy on the ropes and U.S. growth slogging along at a slow pace, factories have been relatively quiet over the last year.

ism manufacturing index economyHiring at factories has picked up since the summer, and the jump in the employment component of the latest ISM manufacturing index suggests that manufacturing payrolls could show a surprisingly strong gain when the November jobs report is released Friday. Car makers and producers of furniture and food products had solid job gains in the October report, but computer and electronics manufacturers trimmed their payrolls.

Heading into the new year, manufacturers in the U.S. and around the world are looking better, with a reviving Europe, improvements in Japan and a firming of China’s economy. U.S. economic growth is expected to accelerate next year as well, but recent weakness in corporate capital spending, perhaps stemming partly from federal policy uncertainties, could restrain American manufacturing activity.

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Audience Participation Time!

  • What technology do you think manufacturing companies should invest in to prepare for steady growth in 2014 to make their operations more efficient?
  • Are you optimistic about future growth, or do you think these numbers are too optimistic and you expect something different in 2014 rather than growth?
  • Do you expect your business to grow in 2014?
  • What could hinder the expected growth for manufacturing in 2014?

Let us know by answering the questions in the comment section below!