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Is the manufacturing industry still struggling?

11/8/2019

Is the manufacturing industry still struggling?

In recent months, some of the indicators of activity for the manufacturing industry have been mixed at best. Some believe this is a sign of potentially growing issues for the sector, while others say it's more of a course correction after years of success. Whatever the reason, these difficulties continued in October.

Despite the fact that the economy improved for the 126th straight month - marking 10 and a half years of growth - activity in the manufacturing sector specifically continued to contract, according to the latest industry Report on Business from the Institute of Supply Management. Overall, the ISM's index showed a reading of 48.3, still below the benchmark of 50, but reversing course from the faster contraction of 47.8 seen in September. This marked the third straight month of declines.

However, there were some stronger indicators that things could already be turning around: New orders and employment both ticked up, as did inventories and, interestingly, new export orders, the report said. All but the last of these were in a state of contraction, but that tightening seems to be slowing down a bit. If these trends continue, it appears that it may be mere months before the end of the difficulties seen since summer.

"Comments from the panel reflect an improvement from the prior month, but sentiment remains more cautious than optimistic," said Timothy Fiore, chair of the ISM's Manufacturing Business Survey Committee.

A global issue?
Similar issues were observed by factories around the world, as the J.P. Morgan Global Manufacturing PMI ticked up in October, but nonetheless remained below a reading of 50. In all, the company's global PMI rose to 49.8, up one basis point from September, which could indicate the industry "may have bottomed out in July."

Here, too, many key indicators improved, several changing from shrinking to growing once again, the report said. This includes output, new orders, new export orders and future output, though on a global level, employment actually started to decline at a faster rate. Among the 31 countries the global PMI examines, 14 experienced an index reading north of 50, including the U.S., which ranked sixth, just behind China. Only one region - Germany - had a PMI below 45.

Contextualizing the current situation
Certainly, the current numbers for the ISM's index aren't necessarily encouraging, but they are reversing course, which may be good news after a few months' worth of concerns, according to analysis by MarketWatch. The recent slump marked the first time since mid-2016 the index was under 50, and while that has led the industry to shed some jobs for the first time in a while, the number of people working in the sector today is north of 12.8 million. Just three years ago, that figure was under 12.4 million.

Even when the industry is going through a brief rough patch, manufacturers would be wise to continue offering their employees and potential hires strong salaries and benefits, as doing so will help them attract and retain talent when competition heats up.

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