The Commerce Department reported on May 16 that housing starts for April were much lower than expected. Though in contrast to that data, the number of building permits rose — up to a seasonally adjusted annual rate of 1.02 million, which is the first time it was greater than 1 million since June 2008. That seems to follow the story of many economic indicators related to manufacturing: a mix of ups and downs.
The Purchasing Managers’ Index and the AAA Bond Rate are trending downward. The bond rate’s extremely low level, even after a modest increase, continues to suggest the potential for expansion. Similarly, the modest decline in the Purchasing Managers’ Index is worrisome even though it remains above the expansionary line of 50. Capacity utilization is flat now but at a level that suggests significant production levels.
The movement in these three indicators is consistent with the word around the industry that customers are still buying but are doing so with great caution. As noted in the past three months, the caution seems to stem primarily from Washington’s inability to make clear decisions about the budget and sequestration issues. This lack of leadership leaves in question the fiscal situation’s impact on jobs and government contracts as well as what regulations will be put in place due to the Affordable Care Act, often referred to as Obamacare.
The USMTO is also indicating a decline in the order pace. The fall in pace is expected to continue through the next 70 days or the end of July. However, the strengthening of several indicators suggests this downturn may be short in duration. Light vehicle sales are at a 15 million-unit-plus pace through the end of the quarter. In addition, the consumer appears poised to begin contributing to economic growth as the consumer confidence level has increased each month during the first quarter of 2013.
Even the slower order pace of the second quarter is expected to be better than the same quarters in 2010 and 2011 when order levels were climbing by phenomenal levels. Hopefully, the current market represents merely a pause in the continued growth of both durable manufacturing and manufacturing technology investment. Manufacturers continue to hoard cash, which means that with any boost in confidence levels or a clearer understanding of where Washington is headed, the market could see a flood of new investment activity.
Pat McGibbon is vice president of industry intelligence and engagement for AMT – The Association For Manufacturing Technology. Based in McLean, Va., AMT represents and promotes U.S.-based manufacturing technology and its members — those who design, build, sell, and service the continuously evolving technology that lies at the heart of manufacturing. For more, visit AMT’s website at www.amtonline.org.