Year: 2011

Bloomberg News (6/9, Zumbrun) reports, “The Federal Reserve said the economy expanded at a ‘steady pace’ in most of the US while slowing in four of 12 regions as consumers contended with higher food and fuel prices and shortages of parts reduced auto production.” The Fed’s Beige Book reports “indicated that economic activity generally continued to expand since the last report, though a few districts indicated some deceleration,” the agency said, noting that manufacturing “continued to expand in most parts of the country,” while other factors like consumer spending and employment were either “mixed” or showing slow improvement. John Canally, of LPL Financial Corp said the results show the economy is “by no means booming, but it does sound like the temporary factors are a big part of what we saw in the data the last six weeks.”

The AP (6/9) reports that the Beige Book reports were “the weakest survey since fall, when two regions failed to grow at all. And it confirmed a slew of recent data that portray a national economy whose growth has faltered.” However, the AP notes, “many economists agree with comments Fed Chairman Ben Bernanke made Tuesday,” when “he suggested that the slowdown from high gas prices and Japan’s crises is temporary and that growth should pick up later this year.” The AP (6/9, Rugaber) also provides highlights of the reports from the 12 regional bank districts.

Under the headline “Fed Report Finds Cause For Optimism,” the Wall Street Journal (6/9, Lahart, Subscription Publication) reports that some analysts had expected deeper economic weakness to be highlighted in the Fed’s report. And while “a few Districts indicated some deceleration,” as the report says, experts say that the temporary nature of many of the hurdles, such as supply chain disruptions from the disasters in Japan that are now normalizing again, is reason to expect continued improvement through the rest of 2011. Like the AP, the Wall Street Journal (6/9, Bater) highlights details from the 12 regional bank districts.

From SME Daily Executive Briefing 6/9/2011

The gloom and doom brigade has been out in force for the last few weeks. Some of this reaction is justifiable when one looks at the numbers that have been released lately. The housing market is still skidding to lower levels. The consumer has retreated in the face of more inflation threats. The jobless rate worsened as the private sector slowed its hiring. Suddenly, there are conversations about double dips and Great Depressions and the very end of the world as we know it. The manufacturing sector in particular seemed to lose its position as the engine of the recovery. The PMI and CMI numbers both slumped, and there was no good news in the durable goods category either. All in all, it was a pretty miserable week, and the markets reflected the new sense of impending doom.

There are three reasons to think that all this is temporary and not the start of another breakdown in the core economy. The first and perhaps the most important factor is the unexpected surge in inflation that took place at the start of the year. This is not yet an increase in the all-important core rate that motivates the Fed to make decisions, but when the real rate of inflation spikes there is an almost instant consumer reaction, when the inflation comes from hikes in commodity prices. The emergence of the “Arab Spring” took the world by surprise; within days the price per barrel of oil had thrust ahead by almost $20, and the price of gas jumped by 70 cents. The consumer was fresh off the memory of 2008 and assumed that it was only going to get worse, and the talking heads reinforced that perception. The result was a rapid withdrawal of consumer confidence which took a big chunk out of overall demand.

However, as outlined in the commodity story below, the price of oil may be heading down soon, and gas prices have already eased a little. They are still higher than they were a few months ago, but the $4 barrier was broken for only a short time and in select regions of the country.

More important, the inflation threat is not yet manifesting in a way that will shift consumer behavior permanently. The three factors that beget inflation are hikes in commodity prices, shifts in the wage structure, and an overall abundance of money in the system. At the moment only commodity prices have become a factor. The high unemployment rate has kept wages low, which is good as far as inflation is concerned. The supply of money has been substantial, but for the most part it has not leaked into the system; as long as it is not leaving the banks it is not fueling price hikes. In other words, the inflation pressure felt by the consumer is coming from fuel and food, and there may be some modest relief on the way for both of these sectors. If the consumer thinks that the threat of much higher pricing is not so immediate, they will likely relax and get back to their old patterns.

The second reason that the downturn might be short-lived is that much of the decline of the last few weeks has been related to the issues stemming from the Japanese earthquake. This was a cruel reminder of just how interdependent the world has become and how fragile the supply chain really is. The devastation in Japan set the industrial sector back by months. The flow of parts and supplies for the world was interrupted and many manufacturers felt the pinch. The Japanese are already starting to recover, and most of those parts will be flowing soon, but the damage will linger for a while longer as the whole notion of just-in-time has been challenged. The response to the disaster will take some time to digest and accommodate, but this process is already under way, and by the end of the year there will be a return to some semblance of normal.

The third reason that this slowdown is likely to be temporary is that some of the conditions that led to the expansion of the recession are fading, and these improvements will start to show up in the months ahead. The one factor that has observers a little baffled is that banks and corporations have more money on hand than they have had in years, but that cash is not going anywhere. The banks have been sitting on it partly because they have had to contend with the wave of rule changes that stemmed from the Dodd Frank legislation, and partly because they have returned to their old-school ways. Slowly but surely, the new system is getting in place, and banks are interested again in expanding their business through loans. Credit is still far from loose, but it isn’t as tight as it has been. The business community has been holding on to cash more aggressively as well, partly because they are not sure what they can count on from the banks anymore and partly because they are just more cautious than they have been. The need to spend that money is not pressing as yet, but if the competition starts to move or there appears to be more demand, they will start to let loose that cash, and the economy will be stimulated again.

Of course there is no way of knowing just when this money will start to flow. It is a bit like the Catch-22 dilemma. Business will spend when there is demand to justify it, but the consumer will not boost demand until business starts expanding — and hiring. The wait will not be permanent, but it is also unlikely that a shift is imminent.

What does this mean for manufacturing?

The industrial sector has been pulling the economy along on the strength of expanded exports and the need to rebuild inventory. Is this something that can be counted on to start up again in the coming months? It is likely that the export demand will return and in fact it has not declined all that much in the past few months. The big drop has been in inventory build, and until the consumer gets more aggressive there will not be a drawdown sufficient to provide much impetus for the manufacturer. As in most other recoveries, the consumer will hold the key.

Summary by Dr. Chris Kuehl, FMA’s economic analyst and founder of Armada Corporate Intelligence.

Following yesterday’s reports on the MAPI/Manufacturing Alliance Global Report-May 201, IndustryWeek (6/7, Andorka) reports “the outlook for the US and global economies is volatile, with one analyst suggesting another economic downturn is possible.” The report’s author Cliff Waldman said the US was “at the fulcrum of the global economic future,” and the “the U.S economy will continue to limp along for the next few years with slow unemployment improvement and uneven growth.” However, Waldman is concerned “that the policymakers in the country have few levers left to pull to pull it out of its current economic quagmire.” While he said that another downturn was possible, Waldman added that the future for manufacturing looks relatively bright, with emerging economies providing an opportunity for growth.

Industrial Distribution (6/8) reports on an interview with Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, about the most recent Manufacturing ISM Report on Business. Regarding the current weakness that has been reflected in recent economic reports, Holcomb said that while growth has slowed in recent months, “all of these important primary metrics were in the 60s, which is really strong.” Going forward, Holcomb said, “I guess our overall sentiment here is continuing growth and cautious optimism, going forward over the next few months.” While the most recent data was less than stellar, he advised, “Let’s wait until next month before we read too much into this.”

From SME Daily Executive Briefing 6/8/2011

Manufacturers in the U.S. have a more optimistic outlook for sales and spending in 2011 than they did at the end of last year, according to a survey by the Institute for Supply Management.

Purchasing managers at U.S. factories anticipate sales will grow 7.5 percent this year, up from a 5.6 percent December forecast, according to the Tempe, Arizona-based group’s semiannual forecast issued today. By contrast, service providers estimated revenue will rise 2.1 percent this year, less than the 3.4 percent forecast in December.

“Much of manufacturing has emerged from the economic downturn and is experiencing significant growth,” Norbert Ore, chairman of the group’s factory committee, said in a statement.“The positive forecast for revenue growth and improved employment will drive the continuation of the recovery” in the industry, he said.

Companies like Corning Inc. (GLW) may continue to profit from growing emerging economies as well as increased capital investment, keeping manufacturing at the head of the economic rebound. Growth among service providers, which by the ISM’s accounting make up more than 90 percent of the economy, may fail to keep pace as American households struggle with 9 percent unemployment.

Manufacturers projected employment will increase 2.9 percent for the rest of this year, while service companies predicted a 0.9 percent increase.

More Investment

Factory managers also estimated they will boost spending on new equipment by 18 percent in 2011, up from the 14.5 percent increase projected in December, today’s report showed. Service providers forecast a 1.4 percent gain in investment, less than the 3.7 percent gain predicted at the end of last year.

“Indications are that non-manufacturing will continue on the path of slow and sustainable growth for the balance of 2011,” Anthony Nieves, chairman of the ISM’s services committee, said in a statement. “Price increases and slow employment growth are prominent areas of concern.”

A report today showed manufacturing cooled last month, reflecting a drop in auto making after supplies of parts were disrupted by the Japanese earthquake and tsunami.

Production Disruption

Output at factories, mines and utilities was unchanged after a 0.7 percent gain in March, figures from the Federal Reserve showed. Manufacturing fell 0.4 percent, led by an 8.9 percent slump in production of automobiles and parts.

In response to a special question, 23 percent of manufacturers surveyed by ISM said they will experience delays in U.S. operations due to supply shortages caused by the disaster in Japan. Fifteen percent of those in services projected disruptions.

Factory leaders see the cost of raw-materials rising 7.4 percent this year and believe they can pass along 34 percent of that increase to customers, the report showed. Service providers see a 4.7 increase in input costs this year, with 27 percent of the gain being passed through.

Earlier this month, the ISM reports showed manufacturing expanded faster than expected in April, driven by gains in exports and inventories. At the same time, service industries grew at the slowest pace in eight months as companies cut back in response to higher energy costs.

ISM Gauges

The ISM’s factory index fell to 60.4 in April from 61.2 the prior month, figures showed May 2. The measure has exceeded 60 for four consecutive months, the best performance since 2004. For both indexes, readings greater than 50 signal growth.

Corning, which makes glass for flat-panel televisions, said it expects sales will grow to $10 billion by 2014, helped by demand from China.

“We’re off to a great start in 2011,” Wendell Weeks, chairman and chief executive officer, said in a statement after the Corning, New York-based company’s annual meeting last month. A significant portion of growth will come from China, which is currently the world’s largest market for several of Corning’s major products, he said.

Two days after the factory gauge was released, the ISM reported that its index of non-manufacturing companies declined to 52.8 in April, lower than the median forecast of economists surveyed by Bloomberg News, from 57.3 in March.

Climbing gas prices have strained earnings at service providers like Union Pacific Corp. (UNP), the biggest U.S. railroad by sales, which posted a quarterly profit on April 20 that trailed analysts’ estimates.

Omaha, Nebraska-based Union Pacific utilized commodity-shipping volume growth “despite spiking fuel prices and winter weather challenges across most of the nation’s rail network,”Chief Executive Officer Jim Young said in a statement.

By Alex Kowalski – May 17, 2011 8:12 AM PT

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

In the context of the US-China Strategic and Economic Dialogue, the Washington Post (5/10) editorializes that “even as leaders again made promises about currencies and trade, evidence was mounting that some old assumptions regarding their relationship may no longer apply.” Manufacturing is presented as a prime example of this: with the advantage of manufacturing in China diminishing thanks to rising wages there and higher productivity in the US, more companies are choosing to manufacture their goods in the US. The Post offers “a few caveats,” such as the fact that China will remain a manufacturing powerhouse, and that “shifting production does not automatically translate into huge numbers of new US jobs.” But regardless, the Post adds, there are related benefits to domestic manufacturing, and a more competitive manufacturing base makes it “appear that the United States does have a future after all – as a highly efficient manufacturing platform for the developed world.”

Click HERE for full article

Manufacturing Stages A Comeback

This year’s survey of the best cities for jobs contains one particularly promising piece of news: the revival of the country’s long distressed industrial sector and those regions most dependent on it. Manufacturing has grown consistently over the past 21 months, and now, for the first time in years, according to data mined by Pepperdine University’s Michael Shires, manufacturing regions are beginning to move up on our list of best cities for jobs.

The fastest-growing industrial areas include four long-suffering Rust Belt cities Anderson, Ind. (No. 4), Youngstown, Ohio (No. 5), Lansing, Mich. (No. 9) and Elkhart-Goshen, Ind. (No. 10). The growth in these and other industrial areas influenced, often dramatically, their overall job rankings. Elkhart, for example, rose 137 places, on our best cities for jobs list; and Lansing moved up 155. Other industrial areas showing huge gains include Niles-Benton Harbor, Mich., up 242 places, Holland-Grand Haven, Mich., (up 172), Grand Rapids, Mich., (up 167) Kokomo Ind., (up 177) ; and Sandusky, Ohio, (up 128).

Industrial growth also affected some of the largest metros, whose economies in other areas, such as business services, often depend on customers from the industrial sector. Economist Hank Robison, co-founder of the forecasting firm EMSI, points out that manufacturing jobs — along with those in the information sector — are unique in creating high levels of value and jobs across other sectors in the economy. They constitute a foundation upon which other sectors, like retail and government, depend on.

Take the case of Milwaukee. The Wisconsin city rode a nearly 3% boost in industrial employment to increase its ranking among the best large metros for jobs: It rose from a near-bottom No. 49 (out of 65) to a healthy No. 23. As manufacturing employment surged, others sectors, notably business services, warehousing and hospitality, showed solid increases after years of slow or even negative growth.

Milwaukee’s growth reflects some of the greater trends affecting the industrial sector, whose overall income is up 21% since mid-2009. The Fed’s monetary policy, combined with deficit-related concerns, has certainly helped by depressing the value of the dollar, keeping American prices more competitive with foreign producers. Low prices have helped U.S. industrial exporters gain sales, much as it has boosted agricultural commodity producers to sell their goods to growing countries like China, India and Brazil. Exports now account for 12.8% of all U.S. output, the largest percentage since the Commerce Department starting tracking in 1929.

These new markets are particularly strategic to regions like Milwaukee and other parts of the Great Lakes. Despite the industry’s massive shrinkage of the past decade, these areas retain significant specialized skills in fields like machine tools, automotive parts and temperature controls, which are all in demand in the developing world as well as at locally based firms, many of which are enjoying high profits. Allen-Edmunds, a high-end shoe maker based in the region, has seen export business surge.

Similarly Peoria, Ill., has benefited from a boom in overseas orders for heavy equipment from Caterpillar, its dominant industrial company. Caterpillar sells the kind of heavy moving and mining machinery now in great demand, particularly in developing countries.
One big driver of industrial growth has come from the source of so much pain in the past: the auto industry. Although production remains 25% below its 2007 peak, the industry, which accounts for roughly one-fifth of the nation’s industrial output, is on the rebound. Ford Motor is achieving its best profits in over a decade, and both Chrysler and General Motors are officially in the black.

Long-depressed industry center Warren-Troy-Farmington Hills, Mich., topped our list of manufacturing job-creators, with an impressive 8.2% increase. Second place went to the Detroit-Livonia-Dearborn area, which experienced 3.5% growth. Of course this recent expansion hardly makes up for decades of decline — auto industry employment, for example, is still down over 34% from its 2005 peak. But industrial expansion has clearly improved job prospects across the board; over the past year, for example, Warren experienced healthy growth in its information, business services and wholesale trade sectors.

Of course, not all the big gainers in the industrial sphere are located in Great Lakes. The movement of manufacturing to other parts of the country, particularly to Texas and the Southeast means a better industrial climate helps those regions as well. The list of fastest-growing industrial areas among our big metros includes San Antonio, Texas (No. 3); Atlanta (No. 7); Oklahoma City (No. 9) and Austin-Roundrock, Texas (No. 10) — all of which did very well in our overall jobs survey. Many of these areas are business-friendly, have low housing costs, reasonable taxation and business-friendly regulatory environments that induce industrial expansions.

Another contributing factor to industrial growth in places like Austin is high-tech manufacturing. Covering everything from servers to specialized production equipments, the expansion of this sector accounts for a healthy 1.7% upturn in San Jose, No. 6 among our large metro regions, a welcome turnaround for an area that shed some 17% of its industrial jobs over the past decade.

But some of the best progress took place in smaller communities spread across the country. Take Yakima, Wash., which came out first on our manufacturing job growth list with a heady 19% growth in industrial jobs. Metal fabrication plants companies such as Canam Steel have led the way, with some of the new demand coming from Canadian sources.

Other strong performers included Midland, Texas, which ranked sixth in our industrial rankings — fifth among the smaller cities. Here an expanding oil and gas sector has sparked a strong revival not only in manufacturing but also in business services and finance.

If manufacturing growth has become a new shaper of overall job growth, some regions may need to move beyond the post-industrial mindset that dominates so much of regional e development orthodoxy. Take the coastal areas in California: Los Angeles-Long Beach, which has the nation’s largest industrial base and high unemployment, continues to lose manufacturing jobs – over 28% gone over the past decade — in part due to strict regulatory controls and a basic inattention to this sector by government officials.

In contrast, some hard-hit economic regions like Modesto, in California’s Central Valley, have promoted industrial growth. Last year, a nearly 14% increase in manufacturing jobs — much of it food related — helped the area gain some 92 places on our survey . They have not exactly won a gold medal, but certainly the improvement amount to more than chopped liver.

To be sure, cities can grow without robust manufacturing. Take financial centers like New York, university towns or Washington, D.C., where paper-pushing remains the core competency. But for many areas, particularly those beyond the urban “glamour zone,” getting down and dirty at the factory represents a solid economic strategy. In fact, it may be one of the best way to nurture your region back to health.

The Top Cities For Manufacturing Jobs In The U.S.

Yakima, Wash.
Sebastian-Vero Beach, Fla.
Palm Coast, Fla.
Anderson, Ind.
Youngstown-Warren-Boardman, Ohio-Pa.
Midland, Texas
Modesto, Calif.
Yuma, Ariz.
Lansing-East Lansing, Mich.
Elkhart-Goshen, Ind.

The Top Big Cities For Manufacturing Jobs in the U.S.

Warren-Troy-Farmington Hills, Mich.
Detroit-Livonia-Dearborn, Mich.
San Antonio-Braunfels, Texas
Milwaukee-Waukesha-West Allis, Wis.
Louisville-Jefferson County, Ky.-Ind.
San Jose-Sunnyvale-Santa Clara, Calif.
Atlanta-Sandy Springs-Marietta, Ga.
Oklahoma City, Okla.
Pittsburgh, Pa.
Austin-Round Rock-San Marcos, Texas

By Joel Kotkin in the Forbes (5/9) “New Geographer” blog

US “Rebuilding” As 244,000 Jobs Added Last Month.

ABC World News (5/6, lead story, 3:05, Stephanopoulos) reported, “Today, we got the numbers so many Americans have been waiting for” — a “strong new jobs report: 244,000 more people were hired last month, with the best private sector growth in five years.” The CBS Evening News (5/6, story 5, 2:25, Smith), however, reported, “By one measure the jobs picture is improving, but by another there is still a long way to go. The Labor Department reported today that private employers created well over a quarter of a million jobs in April, the most in more than 10 years. But there were still far more workers looking for jobs than finding them and the unemployment rate went back up to nine percent.”

NBC Nightly News (5/6, story 4, 2:10, Williams) reported, “The April jobs numbers are just out — coming in better than most of the experts expected.” NBC (Costello) added, “The good news is that it was the private sector, not the government, that added jobs at the fastest rate in five years last month: 57,000 jobs in retail, 51,000 professional jobs, 46,000 in leisure and hospitality, 29,000 manufacturing jobs.” But “despite adding 240,000 jobs in April, the unemployment rate inched up from 8.8 percent to nine percent, as the population grew and some Americans resumed their job hunt.”

Bloomberg News (5/6, Dorning) reports President Obama “said the US economy is regaining momentum even as high energy prices have crimped consumer spending.” The President said, “This is where the American economy is rebuilding, where we are regaining our footing.”

The AP (5/7, Aversa) reports, “American companies are on a hiring spree. Businesses delivered a jolt of strength to the economy by creating 268,000 jobs in April, the biggest monthly total in more than five years. The gains were solid across an array of industries, even beleaguered construction. It was the third month in a row of at least 200,000 new jobs.” The AP said the “slight rise in the unemployment rate to 9 percent appears to be a quirk.” The Los Angeles Times (5/7, Lee) reports, “A significant part of the stubbornly high unemployment may be structural: Millions of potential workers may have only the dimmest prospects for finding work even if the recovery continues — owing largely to their levels of skill and education.”

Bloomberg News (5/6, Homan) reports employers “added more jobs than forecast and the labor market in the prior two months was stronger than initially estimated.” The New York Times (5/7, Rich, Subscription Publication) reports, “For three straight months, the nation’s employers have delivered solid job growth, easing some concerns that the economy could be stalling.”

Employment Numbers May Reflect Spike In Recent Layoffs.

USA Today (5/9, Davidson) reports, “Last week’s report of better-than-expected employment gains in April raised hopes that US job growth…is finally picking up momentum,” but “some economists see flashing yellow lights in the numbers that could signal at least a temporary lull the next few months. … The number of Americans unemployed less than five weeks rose by 242,000 in April and this group now makes up 20% of the unemployed. Both figures are the highest since October 2006 and are consistent with the jump in jobless claims reported last week, suggesting layoffs have picked up recently.”

From SME Daily Executive Briefing 5/9/2011