December ISM PMI Positive Bellwether for 2017

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The Institute for Supply Management announced on Tuesday that its Purchasing Manager’s Index (PMI) for Manufacturing index rose 1.5 percentage points to 54.7 in December, its highest level in two years and up from 53.2 in November.
This is great news- let’s look at some details to find out why:

New Orders component– new orders rose 7.2 percentage points to 60.2 – their highest level since November 2014
Strength in Employment component– employment rose 0.8 percentage point to 53.1 – the highest since June 2015
And strength in the Production component-production improved to 60.3- very unusual outcomes for Manufacturing in December.

This is an unexpectedly solid report showing Manufacturing industry performance stronger in December than in November.

Highest in 2 years and up 1.5 points over November 2016

Here is why we see this as a bellwether for a great 2017 for our precision machining companies.

U.S. Light Vehicle (Auto) Sales set annual sales record according to the Wall Street Journal and reports we heard from online videos from AUTO NEWS. “A total of 17.55 million vehicles were sold in 2016, roughly 60% of which were classified as light trucks” according to the Wall Street Journal.
2016 sales volume was up ~ 700,000 light vehicles, according to reports from Auto News
The average age of the U.S. Light Vehicle Fleet in 2016 was a record 11.6 years, According to Statista online,

There is still plenty of reason to expect demand for light cars and trucks to be sustained based on the average age of the U.S. Fleet and the current low unemployment rate reported by the Federal government. Knowing that Automotive is the precision machining industry’s most heavily served market convinces us that these numbers reported by ISM, WSJ, Auto News and Statista bode well for our precision machining shops in 2017. I hope that you are preparing for success, not for hunkering down in 2017.
Happy New Year, indeed!

Link to ISM December 2016 report
Statista Age of Light Vehicles in U.S.

Calculated Risk December ISM Post and Chart

Precision Machining Indications from September ISM Report

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“Manufacturing continued its growth in September as the PMI registered 51.6 percent, an increase of 1 percentage point when compared to August’s reading of 50.6 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.”- September 2011 ISM Report.

The view in the marketplace for precision machined products is somewhat less clear.

LED Mtg feb09 109 — Precision Machining is an important sector of Fabricated Metals Industry.

Here is a look at the ISM indicators for Fabricated Metals Manufacturing in September.

(Precision machining is a component of Fabricated Metals Manufacturing- the Fab Metal data reflects our machining industries.)

The ISM September 2011 data for Fabricated Metal Manufacturing shows:

New Orders- Growth
Production- Increase
Employment- Decrease
Deliveries- Faster
Inventories- Decrease
Customer’s Inventories- Too High
Prices- Fab Metals is only industry reporting lower prices (as well as higher prices)
Order Backlog- Increase
New Exports- Increase
Imports of Materials- Increase

It may not feel like Christmas, but only two of the above ten indicators (Customer’s Inventories and Employment) were negative for Fab Metals and Precision Machining.

You can access the full ISM Report for September here.

Manufacturing Growth Not Just A Wish

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ISM’s report of manufacturing’s expansion for the fourth , and economic expansion for seventh month in a row, combined with PMPA’s Business Trends Index improvement for 5 consecutive months, confirm that we are in a recovery phase, rather than the free fall we just survived.
What should we be doing differently in the recovery phase, compared to what we needed to do while we were free falling?

ismgraphnovcrop — ISM values over 50 indicate expansion of manufacturing.

The latest Institute for Supply Management Manufacturing Report for November showed that Manufacturing expanded for the fourth month in a row. While the Purchasing Manager’s Index decreased from 55.7 in October to 53.6 in November, the fact that the November value is above 50 indicates that mnufacturing activity continues to expand.
The Precision Machined Products Association’s Business Trends Index of Sales for October was up for the fifth month in a row, to 85, its highest value for the year. Almost three quarters of PMPA Business Trends respondents expect industry sales to remain at current levels or increase.
This reinforces the signal from ISM’s New Orders measure, which climbed to 60.3 in November from October ‘s 58.5. (The tie-in for precision machined components and manufactured goods should need little explanation- our products are the enablers of multiple technologies in automotive, appliances, aerospace, electrical/electronic, heavy truck, off road, and medical products to name a few.
These are not the halcyon days of “ship it, ship it, ship it.,” that seem like distant, almost forgotten memories. But ISM’s report of manufacturing’s expansion for the fourth , and economic expansion for seventh month in a row, combined with PMPA’s Business Trends Index improvement for 5 consecutive months, confirm that we are in a recovery phase, rather than the free fall we just survived.
What are your doing differently now? What lessons have you learned? What is your new top priority every day?