Hopeful Data, Challenging Climate

The November purchasing managers survey from the Institute for Supply Management suggests that U.S. manufacturing is set for a positive finish to a mixed year. The overall Purchasing Managers’ Index increased a significant 0.9 percentage points to a strong 57.3 percent, nearly 4percentage points above its 12-month average and its highest level since April 2011. Key component indices such as new orders and production, as well as the backlog of orders, highlight positive momentum.

While encouraging, these recent ISM data have been notably stronger than other manufacturing-related indicators and need to be interpreted against the backdrop of a challenging domestic and world business climate. ISM respondent comments for November are telling in this regard. Some survey respondents noted the strong order rate and good business climate. Others remarked that federal policy difficulties have been creating business caution and uncertainty. Essentially flat manufacturing output growth in the second quarter of this year with only 1 percent growth in the third quarter testify to the real impact of uncertainty.

A cornucopia of positive and negative forces will continue to impact the highly globalized U.S. manufacturing sector going into 2014. Much improved world financial and economic stability is the key positive for U.S. factories. But the halting and tepid nature of the recovery in such critical areas as the Eurozone and large emerging markets unfortunately means that global improvement is not doing as much as it should for U.S. manufacturing growth and job creation. Further, U.S. federal policy difficulties continue to suppress capital spending, a key demand driver for the factory sector. Modest growth acceleration with a mix of upside and downside risks best describes the outlook for U.S. manufacturing as it ends a challenging year.