Welcome to this first edition of the Accenture Spend Trends Report on Macro Manufacturing Trends and the Industrial and MRO (Maintenance, Repair, and Operations) market.
This report will consistently track several key performance indicators of the U.S. Manufacturing environment to indicate the health and current trends affecting manufacturers, and the impact of those trends on major industrial supply markets.
Purchasing Managers Index “PMI,” Published by The Institute for Supply Management
An indicator of the economic health of the manufacturing sector, the PMI index is based on five major indicators: New orders, inventory levels, production, supplier deliveries, and the employment environment.
A reading of 50 percent or higher indicates expansion and a reading below 50 percent indicates contraction.
The February 2016 PMI® registered 49.5 percent, an increase of 1.3 percent above the January 2016 reading of 48.2 percent, but down from 53.3 percent in February 2015 and the fifth straight month where the index has been below 50 percent.
Of the eighteen manufacturing industries, nine reported growth in January in the following order:
Furniture & Related Products
Electrical Equipment, Appliances, & Components
Food, Beverage & Tobacco Products
Seven industries reported contraction in February, in the following order: Apparel, Leather, & Allied Products; Petroleum & Coal Products; Computer & Electronic Products, Printing & Related Support Activities, Transportation Equipment, Plastics & Rubber Products and Fabricated Metal Products. The last time that the PMI dipped below 50 percent for more than two consecutive months was the recession of 2009.
The Industrial Production index increased 0.9 percent in January after decreasing 0.7 percent in December.
Capacity Utilization Rate
The January 2016 Manufacturing Capacity Utilization Rate as published by the U.S. Federal Reserve improved slightly to 77.1 percent, up 1.4 percent year-over-year.
Declining utilization rates are not uncommon when demand slows, and manufacturers will not be expected to invest in significant capital improvement projects until demand improves.
Value of U.S. Dollar
In recent weeks, falling oil prices and weaker U.S. economic data weighed down on the U.S. dollar only to see the dollar rebound strongly against the euro and the British pound as concerns increased about the potential that voters in the United Kingdom could vote in favor of the U.K. leaving the European Union. Despite the recent volatility at current prices (as of February 24, 2016), the dollar remains approximately 10 to12 percent higher against the euro and the British pound, respectively, since the beginning of 2015, but has fallen in value by 6 percent against the Japanese yen.
MAPI Quarterly Forecast
The MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, released its last quarterly economic forecast in November 2015, predicting that manufacturing production will expand 1.8 percent in 2015 and improve to 2.6 percent growth in 2016 and 3.0 percent in 2017.
Manufactured Goods Export Report
U.S. Goods exports were down 4.8 percent at the annual rate in 2015, whereas goods imports grew 3.1 percent.
Data from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis showed that 2015 exports were $2,230 billion while 2015 imports were $2,762 billion. This means a goods and services deficit of $531.5 billion for the year.
Change in Manufacturing Employment
Total manufacturing employment increased by 29,000 from December 2015 to January 2016 after only rising 13,000 in December and 3,000 in November. The trailing twelve month average was 3,750.
U.S. Manufacturing Technology Orders
The Association for Manufacturing Technology reported November U.S. manufacturing technology orders totaled $329.8 million, up 2 percent over the previous month but down 13.8 percent compared to November 2014. 2015 YTD orders were down 17.2 percent vs. the same point in 2014.
New Orders for Manufactured Goods
Durable Goods Manufacturers New Orders for December 2015 were $225.4M, down 5.1 percent from November 2015 (seasonally adjusted).Year to date, new orders were down 3.5 percent compared to 2014.
Real gross domestic product (GDP)—the value of the goods and services produced by the U.S. economy less the value of the goods and services used up in production, adjusted for price changes—increased at an annual rate of 1.0 percent in the fourth quarter of 2015, according to the “first revision” released by the Bureau of Economic Analysis on February 26, 2016. This represented an improvement from the “advance” estimate of 0.7 percent growth, but reflects a slowdown from the 2.0 percent growth rate in the third quarter of 2015.
There is no doubt that the manufacturing sector experienced some strong headwinds in 2015. A weaker economy in China, a strong U.S. dollar, the over-supply of oil dragging prices to record lows, and a prolonged trade goods deficit dragged many of the Q4 manufacturing indices down.
However January results are slowing a slight turnaround, which is a good indicator as manufacturing activity can be slowed in the January and February timeframe due to winter weather issues. While growth is expected to be slow in H1 CY2016, analysts are estimating that manufacturing production could improve by 3.0–3.5 percent by mid-year.