US manufacturers

Published: December 1 2009 14:51 | Last updated: December 1 2009 22:31

One of the hopes for a sharp recovery next year is that Americas factories start whirring again. From the ridiculously scary month of
March when the Institute of Supply Managements survey included not a single growing industry, things have been steadily
improving. In November, three-quarters of respondents said they were expanding. That is down slightly from the previous month. But
those reporting an increase in new orders jumped 22 percentage points from only half of all industries in October. Exporters, thanks to
a weaker dollar, were also much stronger.
Two significant concerns linger, however. First, it seems as if the upward trend in the number of manufacturers reporting growing
employment levels since April is faltering. Flipping the numbers on their head, roughly two thirds of industries are still not hiring.
Forget the rise in new orders, if managers really thought business was going to pick up strongly next year, opening the factory gates
would be the surest signal.
The second concern is inventories. According to Department of Commerce data, shipments of durable goods are down again in
September, having nudged into positive territory the month before. Worse, factories clearly have plenty of capacity: so-called unfilled
orders fell again for the twelfth consecutive month, a record since the series began. Because shipments are sluggish, the ISM surveys
inventory index was lower. In other words, nothing on the horizon can convince manufacturers to start piling storerooms higher again.
No wonder employees are still being laid off and hours worked remains near record lows. It also means the contribution from
inventories to economic growth in the fourth quarter as well as next year will be muted.

Manufacturers breathe sigh of relief

By Chris Giles in London
Published: November 2 2009 19:18 | Last updated: November 2 2009 19:18

A year after the financial crisis turned into a global recession, manufacturers are breathing a collective sigh of relief. With few notable
exceptions, producers of goods across Asia, Europe and the US are reporting rising output, healthier order books and better
employment prospects.
If Mondays collection of national survey data for October is translated into hard figures, the end of worldwide contraction will be
dated to some time in the northern hemisphere summer of 2009.
The improvement in sentiment, as seen in various purchasing manager indices around the world, needs to be seen in the context of last
years collapse in purchasing of consumer durables and capital goods. But the worst fears of a global depression were avoided, the
world did not slip into protectionism and manufacturers have now shifted unsold inventory, allowing them to look upwards again,
even in still-uncertain times.
The signs of a global bounce in sentiment among manufacturers started yesterday in Asia where a raft of manufacturers surveys
provided powerful evidence that the regions rapid recovery from recession is underpinned by a sustainable improvement in
manufacturing output. Purchasing managers index reports from China, India, South Korea, Australia and Taiwan echoed figures over
the weekend from Japan in confirming that a robust and widespread recovery appears to be under way.
Although not every country recorded an improvement in the PMI index for October, the results were consistent with manufacturing
output rising across the region at a healthy pace.
HSBC, the global bank, which sponsors many of the Asian PMI figures, said the results were consistent with 8-10 per cent growth in
India and continued rapid expansion in China.
Qu Hongbin, HSBCs chief economist for China, said: The ... strong recovery in the manufacturing sector should gain further
momentum in the coming months ... underpinning strong economic growth in the fourth quarter of 2009.
The improvement in sentiment was continued in Europe where Markit, the global services company that produces the figures,
confirmed an earlier flash estimate that the eurozone manufacturing PMI rose to 50.7, the first time it was above 50 in 17 months.

This level was consistent with rising output, said Chris Williamson, Markits chief economist. With capacity now coming into line
relative to order books, and further growth of production looking likely in coming months as factories restock, conditions are set to
improve further, he added.
The two-star performers in Europe were the UK and France, which have seen marked differences in their official statistics. Markit said
French manufacturers reported output rising at its fastest rate in nine years, while in the UK, where official data showed the economy
still contracting in the third quarter, the equivalent index leapt from 49.9 in September to 53.7 in October, the third highest monthly
rise on record. The figures will fuel existing controversy over the accuracy of British data.
In contrast Spain, Ireland and Greece all experienced continued gloom among their manufacturers, Markit said. But it was not until the
equivalent US figures were released, published by the Institute for Supply Management, that it became clear there was a global
momentum behind manufacturing sentiment, the polar opposite of the experience a year ago.
US manufacturers reported activity was at its highest level since April 2006, seemingly confirming that last weeks official data
showing gross domestic product returned to growth in the third quarter was not just a flash in the pan.
If the PMI for GDP is annualised, it corresponds to a 4.5 per cent increase in real GDP annually, said Norbert J. Ore, ISM
Manufacturing Business survey committee chair.
In many European countries and in the US, both the GDP and the PMI figures have been distorted by cash-for-clunkers programmes,
which have subsidised new car purchases but Mondays data indicated the recovery had become wider and deeper.
But the most warmly welcomed element of the US figures was the first indication among US manufacturers that they have ceased job
cuts.
Unlike in Europe or Asia, unemployment in the US is expected to flirt with the 10 per cent level. If that early indication from a
manufacturing survey becomes cemented into real data, the sigh of relief heard in manufacturing will spread far and wide.