Breaking Stories

Manufacturing Momentum Predicts Consumer Spend Recovery

Seems like the rebound has legs.

To that end, the latest data from the Institute of Supply Management (ISM) showed on Monday (Nov. 2) that the U.S. manufacturing sector continued a rebound that has stretched through the past six months, with the latest showing in October underpinned in part by consumer demand, which in turn translated into continued production of consumers goods.

The report from the ISM Manufacturing Report on Business PMI (a gauge of national factory activity) stood at 59.3, up 3.9 points sequentially from September’s level.

Consensus had pegged the PMI (purchasing manager’s index) to come in at 56. A reading above 50 generally indicates expansion. The ISM said that the latest reading was the second-largest positive change since May of 2009.

We note that manufacturing is not the economic driver it once was, as it is responsible for roughly 11 percent of the U.S. economy. But the latest report underscores a U.S. rebound where overall growth in the third quarter was measured at an annualized pace of more than 33 percent, following a 31.4 percent contraction amid the pandemic during the three months that ended in June. Drilling down a bit, April marked the first decline in the ISM readings in 131 months.

But it seems that, now, purchasing managers are sanguine about demand that lies ahead. Importantly, the ISM’s “new” orders rose to 67.9, up from 60.2 in September.

“The manufacturing economy continued its recovery in October,” the ISM said in its latest report. “Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories; with every month, they are becoming more proficient at expanding output. Panel sentiment was optimistic (two positive comments for every cautious comment).”

Consumption (measured by the Production and Employment indexes) contributed positively (a combined 5.6-percentage point increase) to the Manufacturing PMI calculation, said the ISM, with five of the top six industries continuing to expand output strongly.

And in terms of near term demand, the ISM said that all of the top six industry sectors — Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Petroleum & Coal Products; and Transportation Equipment — expanded at strong levels.

Looking Toward Future Growth

The trends indicate that businesses are investing in equipment and inventory that is needed to support future growth. The data may also be a nod to the fact that we may see higher prices down the line: If manufacturer’s orders are growing, it may look to boost customers’ prices, and those (corporate) customers may accept those increases, confident they can pass them along to end consumers. That pricing power may become apparent as customer inventories are at their lowest levels since June 2010, which is also considered a positive for future production.

Recent PYMNTS data also show that smaller firms — the kind that are the mainstay and staple of Main Street — shows they are generally more confident now than they were in March. Confidence, of course, leads to investments in property, plant and equipment. Fifty-four percent of all small- to medium-sized businesses (SMBs) now say they feel confident that they will be able to stay open through the end of the pandemic, yet just 42 percent felt the same in March. Restaurants and construction firms were most confident they would survive the pandemic.

Investing in equipment and systems (which ignites demand for manufacturers’ output, for everything from ovens to tech hardware) also implies that companies will invest in back-office upgrades and payments functionality — especially as eCommerce, curbside delivery and omnichannel efforts increasingly become “the new normal.”

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

Leave a reply

Your email address will not be published. Required fields are marked *

Next Article:

0 %