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Current trends in manufacturing: Continued challenges, a few bright spots

January 22, 2016

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If your manufacturing business was a bit down as the last year came to an end, you’re not alone. The industry faced some challenges, and will continue to do so as we start 2016, but there is some indication of optimism ahead. We’ve compiled several of the latest news headlines and economic reports, both national and regional, to provide an update on the current state of U.S. manufacturing.

The challenges facing the manufacturing industry

Recent reports have suggested that U.S. manufacturing activity slowed at the close of 2015. One such report came from the Institute for Supply Management’s (ISM) latest Purchasing Managers Index (PMI), which indicated that the manufacturing industry contracted for a second straight month. In fact, the December PMI registered 48.2 percent, which represented a 0.4 percent drop from November’s 48.6 percent reading. The basis for these readings is that any percentage over 50 indicates growth in the industry, while less than 50 percentage points represents a contraction.

2015-monthly-PMI

These December readings marked the sixth consecutive monthly decline in the index, from a recent high of 53.5 percent in June. The Wall Street Journal reported that the December reading was particularly significant because it was the lowest reading since June 2009, the tail end of the Great Recession.

Additionally, the ISM report indicated that only 6 of the 18 manufacturing sectors tracked by the organization reported growth at year-end, suggesting the slowdown is affecting a broad spectrum of manufacturing businesses. The report also indicated that manufacturers and their customers are continuing to draw down bloated inventories, further lessening the need to churn out new products. Finally, the report expressed that the employment index fell into contraction territory, at 48.1 percent in December, indicating that manufacturers shed jobs at the end of 2015.

Global headwinds impacting manufacturers

There are several global forces weighing on U.S. manufacturers that have resulted in the slowdown in the industry. These headwinds include:

  1. A strong dollar, which has made U.S. goods more expensive overseas and imported goods cheaper
  2. Weak economies in many emerging markets and the Euro Zone, which have lessened global demand for U.S. manufactured goods
  3. A plunge in energy prices, which has reduced demand for oil- and gas-field equipment, including drilling equipment, steel pipes and related products

Positive developments in the sector

While there were clear indications that the U.S. manufacturing sector was in decline in 2015, the broader economy grew for the 79th consecutive month, according to the ISM report. In addition, the U.S. has maintained consistent job growth leading many economists to expect wage gains in 2016. This should help stimulate consumer spending in the economy, which could help kick-start U.S. factory and manufacturing activity. Additionally, many economists project that U.S. dollar and crude prices will ultimately stabilize by the end of this year, driving growth for manufacturers by mid to late 2016.

While the global economic conditions and the strength of the dollar will continue to challenge domestic manufacturers for the near-term, there are some bright spots a little closer to home. According to the Federal Reserve’s latest Fourth District Beige Book (which includes Ohio, eastern Kentucky, western Pennsylvania and the panhandle of West Virginia), the region’s suppliers to the automotive, construction, and aerospace and defense industries are seeing strong demand.

In addition, The Columbus Dispatch recently highlighted an article by Manufacturer’s News, which reported that Ohio added 9,742 industrial jobs from September 2014 to September 2015, a gain of 1.1 percent. Tom Dubin, president of Manufacturer’s News, stated that Ohio has done a good job of attracting companies and has a lot of things going for it in terms of location, proximity to highways, low construction costs and available land and labor.

A prime example of Ohio’s attractiveness for manufacturers occurred recently with Ford’s decision to move production of the new F-650 and F-750 heavy duty pickup trucks to Avon Lake, Ohio, from Mexico. As a result, the state received a $168 million manufacturing plant investment and was able to save over 1,000 manufacturing jobs.

Bottom line

Although the manufacturing industry experienced a gradual decline at the end of 2015, many experts are projecting positive growth by year-end. While growth may be sluggish to start the year, it will continue a cautious ascent despite remaining headwinds that could negatively impact many manufacturers.

Ultimately, as economic conditions shift to favorably impact the manufacturing sector, it is imperative to stay up to date on all current events. As a top 60 accounting firm with a significant manufacturing and distribution practice, CSH professionals regularly advise M&D business leaders throughout our region about the challenges they are facing and the trends they are seeing in the industry. We stay current on the latest market developments and economic indicators, which are indicative of the overall health of the manufacturing industry. Contact us today to discuss your needs and how your business might be able to take advantage of industry trends.

 

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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