Manufacturing activity climbs
By James P. Miller
Chicago Tribune
The U.S. manufacturing sector's rebound accelerated in December, as a closely watched index of such activity surged to its highest level in two decades.
The Institute of Supply Management report released yesterday showed the long-troubled manufacturing sector expanding for a sixth straight month. And the rate of new orders — a portent of future production — climbed to a level that hasn't been seen since Harry Truman was president more than 50 years ago.
Perhaps equally telling, the December survey found prospects for manufacturing employment modestly improving for a second consecutive month — after 38 consecutive months in which industrial employers reported shrinking employment.
The December employment reading, the highest level the ISM has reported in four years, "suggests a turning point in manufacturing employment," said Brian Wesbury, chief economist at the Chicago firm of Griffin, Kubik, Stephens & Thompson.
The decline in employment in the long-troubled sector, where more than 3 million jobs have disappeared in recent years, has been a political liability for the Bush administration, as well as a damper on the U.S. economy. But it appears to have finally "bottomed," Wesbury said, and hiring activity "should show signs of life in the months ahead."
The nation's manufacturers hit trouble long before the broader U.S. economy slid into recession in early 2001, and the group similarly has remained wobbly well after most other segments have returned to health.
Manufacturing "is really the last piece of the puzzle that is falling in place to produce broad-based sustained economic growth," noted Sung Won Sohn, chief economist with Minneapolis-based Wells Fargo & Co., The Associated Press reported.
In suburban Carol Stream, Ill., privately owned contract manufacturer Prince Industries Inc. is experiencing the upbeat trends that the ISM report discovered, notes chief executive Mark Miller.
Sales last year were up 15 percent from 2002, he says, and Prince has been getting orders from "customers of ours who have been silent for 2 1/2 years."
Prince, said Miller, is "looking forward" to a stronger year in 2004.
The family-owned concern, which during the cyclical downturn trimmed its workforce by 17 percent to 175 employees, has seen improving contract-manufacturing orders from big clients such as heavy-equipment Caterpillar Inc. and bar-code manufacturer Zebra Technologies.
Prince is not alone.
"It's now evident that the manufacturing sector had a remarkable fourth quarter and enters the new year with a considerable momentum," said Matthew Martin, an economist with the consulting firm Economy.com.
The ISM index uses a format in which a reading above 50 indicates expansion, while a below-50 figure shows the sector is contracting. The barometer of industry growth turned positive in midsummer as a variety of positive factors began to take hold, and in November the index surprised observers by surging to an exceptionally high 62.8. (It last topped 60 in 1987.)
Economists had expected the reading to slip a bit in December, to about 61.0. But instead, the index moved up to 66.2, the highest reading since December 1983.
The gains were broad in scope: Manufacturing production showed growth, as did employment, product shipments and industry pricing. And the level of unsold product on hand at manufacturers' customers declined, meaning they'll have to place new orders soon. The biggest single factor behind the jump in the index, in fact, was a burst in new orders last month. New orders climbed to an astonishing 77.6, a level last seen in July of 1950.
"That the manufacturing sector had been doing very well in recent months was never in question," Banc One Capital Markets economist Anthony Karydakis noted cautiously in a review of the ISM data. "The key issue now is how strong the momentum in the rest of the economy will be in the next couple of quarters."
For at least 20 years, U.S. manufacturers have been affected by structural changes, as well as the economy's ups and downs. In 1970, one in four U.S. jobs came from manufacturing; today, as a result of globalization, factory automation and the growth of the service economy, manufacturing accounts for only one in nine U.S. jobs.
Until recently, the manufacturing sector's travails seemed to offer Democratic opponents of the Bush administration a failure to point to. As the segment's rebound takes hold, however, the subject may lose some of its sting.
