I belong to a number of manufacturing associations and subscribe to their monthly newsletters. Most provide a monthly synopsis of key manufacturing indicators. Here’s a summary from a cross-section of informed views.
All in all, this has been a pretty good month as a high majority of key manufacturing indicators are trending positive, some by wide margins. At the same time, there have been some warning lights flashing. Even with all the market drama, there is still room for further stock market adjustment based on historical data and the meteoric run-up. Some analysts look for a 10% drop in the market that lasts and that hasn’t happened yet. Looking at the data in this month’s analysis, the economy looks healthier than the markets do right now. New Automobile/Light Truck Sales declined but this is typically not the time of year consumers buy new vehicles, so the number is tempered. New Home Starts were also down, but the reasons are more predictable. This is not the time of year for housing starts, and there has been significant variation according to where the building is taking place. Some of the hotter markets cooled a little while most of the others are carrying on as before. The big decline has been in the starter home category, with continued growth in the more expensive homes. The only other reading that fell a bit was the PMI New Order index, (https://ycharts.com/indicators/new_orders_index) but this was of little concern some of the numbers are still in the mid-60’s, and anything above 50 is considered expansionary.
The positives are very positive and have tended to reinforce each other
There were impressive gains in Capacity Utilization as well as Capital Expenditures, and that makes sense as these two are frequently linked. The capacity numbers are getting very close to the “sweet spot” which is between 80% and 85% capacity usage. When these numbers get into the 80% range, they signal that companies are starting to add capacity – hiring and buying equipment. As a whole, the economy is not quite there yet, but some sectors are and they are expanding. It’s happening in the oil and gas sector and has started to show up in transportation. The spending thus far has been on equipment and not real estate, but that should start to change by year-end.
Another set of manufacturing indicators that moved in a positive direction was Steel Consumption and overall Metal Prices. Steel has been responding to some additional activity in public sector construction. There is some concern though about what happens with prices and availability if steel tariffs are actually imposed.
The trio of Durable Goods Shipments, Factory Orders, and Appliances are also moving in somewhat of a similar direction and for related reasons. There is demand for new machinery in anticipation of more demand in the near future, and there has been some evidence suggesting that people are buying now in fear of what inflation might do to their prices toward the end of the year.
There was a recovery as far as the data from the Credit Managers’ Index and this pattern has become very familiar. It was down last month and up the month before, and now it’s up to 55.1.
The Transportation Activity Index is heading north at a rapid clip, and this reflects the growth in all the modes of transportation. Rail activity improved first and saw growth last month, but this month trucking caught up and has expanded as well. There has even been growth in the air cargo sector as there is enough urgent demand for companies to pay additional fees demanded for speedy delivery.
January and so far, February has been good months and all manufacturing indicators have been tracking with GDP numbers over the last three quarters. Thus far there are not many imminent inflation threats, though the setup is there.
Overall, trends clearly indicate this will be a year of good news!
Greg Lee, Managing Partner