MANUFACTURING TRENDS: THE ECONOMY
As 2016 draws to a close, various economic indicators have been mixed, including machine tool orders and manu- facturing employment. Along the way, some major manufac- turers have had their challenges. Boeing Co. (Chicago) and Caterpillar Inc. (Peoria, IL) pared their earnings estimates after the year began. Boeing had a $234 million defi cit in the second quarter, its fi rst quarterly loss since 2009. Mixed economic indicators occur “when the underlying
growth rate is slow,” said Mark Killion, director of US industry services for Oxford Economics (London). Next year will see “probably positive growth, there are certainly no expectations for booming expansion.”
Familiar Story
For manufacturing, the refrain is familiar when it comes to what is holding down growth. —A strong dollar makes US-produced goods more ex- pensive in international markets, holding down exports. —Oil prices have remained low, reducing energy explo- ration, which had been a major market for manufacturers. “There’s some decline in the heavy machinery kind of sector that caters to mining and drilling,” Matia said. “They’re not doing well.”
Brent crude oil is forecast by the US Energy Information Administration to be at $51 a barrel in 2017, up from $43.43 this year. West Texas Intermediate oil prices are forecast at about $50 a barrel for next year, up from $42.78 in 2016. That’s still far less than the days of $100 a barrel oil. —Some major global economies have cooled, including China. In July, when announcing second-quarter fi nancial results, Caterpillar said in a statement that, “World economic growth remains subdued and is not suffi cient to drive im- provement in most of the industries and markets we serve.”
“You have to have a signal the economy will be better.”
Major manufacturing indicators vary but generally point to, at best, slow economic growth for now. ISM (Tempe, AZ) surveys manufacturing purchasing and supply executives across 18 industries. That information is used to compute the group’s PMI. A reading above 50% in- dicates economic expansion, below 50% shows contraction. The PMI averaged 53% over a 36-month period, Holcomb said. That went down to 51.8% for 24 months and 50.3%— barely into positive territory—for 12 months. “In any case, it’s moving along,” Holcomb said.
“We seem to be doing better on the whole than China and Europe.”
ISM also calculates indexes for new orders and
production. Those have been running stronger than the PMI.
The index for new orders “is what we always look to as the gas in the engine,” Holcomb said. “Production follows suit.” The main weak spot is the group’s employment index. ISM forecast in May there would be no manufacturing employment growth for 2016. A similar picture emerges in the monthly jobs
The global aircraft business is still growing but its expansion has downshifted. Still, aerospace has remained one of the stronger performers in manufacturing.
4 TRENDS
AdvancedManufacturing.org | December 2016
report from the US Bureau of Labor Statistics. Manufacturing consistently underperforms when compared to overall economy. The bureau’s initial estimate of US manufactur- ing employment was 12.262 million in September, down from 12.309 million a year earlier. That’s also not much higher than the low of 11.45 million in February 2010 following the severe recession fol- lowing the fi nancial crisis of 2008.
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