November 5, 2013
The Fabricators & Manufacturers Association Intl. (FMA), Rockford, Ill., has released its 3rd Quarter 2013 Forming & Fabricating Job Shop Consumption Report — one of the most complete tools available for forecasting activity in the heart of the manufacturing cycle.
The inaugural issue of the survey showed that the job shops were tracking very closely to other manufacturers, as the data from the report is consistent with the manufacturing sectors of the Purchasing Managers Index (PMI) and the Credit Managers Index (CMI). The latest national data from the PMI shows that industrial production is back in the mid-50s, and there is evidence that capacity utilization numbers are somewhere between 75 and 80 percent — just shy of returning to normal.
However, there is more to that data than meets the eye. According to the report, operating capacity is up for about one-third of the respondents and has remained stable for roughly half of them. There is a pattern in operating capacity or capacity utilization that can be misleading at various points in a year.
Earlier in 2013 there was evidence that many manufacturers were investing in additional capacity as expenditures were up. There is a period between when these machines are purchased and when they are producing at full capacity, especially if they were bought in anticipation of work that was not yet in-house. As this usage level grows, the level of capacity utilization grows commensurately, and that seems to be happening now.
One of the most encouraging signals in the latest report is that new order activity is up for 37 percent of the respondents and remained the same for another 42 percent. That means that more than three-quarters of the respondents either are seeing some solid new order activity or are at least not losing ground. Only the very smallest companies are seeing a significant decline in new orders, and only a little more than one-quarter of them are reporting reduced demand. For the companies in the middle, the new order demand has been impressive.
When it comes to the inflation pressures that might come from higher wages, higher raw material and commodity costs, and the costs of logistics, the majority indicated that almost everything was stable. Most did not add much in the way of payroll, and wages have been holding steady nationwide. The costs of steel, aluminum, copper, and other commodities have either been falling or holding steady.
Perhaps the most important indicator of future activity is the report on planned capital expenditure, as it indicates there is a solid reason to expect the investment will pay off. More than half of the respondents indicate they still are on track to make investments as planned in 2013 and 2014. Of those that will delay the decisions, only 15 percent expect to delay that purchase by a quarter. This is a far more confident look forward than many had expected, given all the uncertainty that has surrounded the economy of late.
The overall sense of this quarter is that expectations are reasonably high for the rest of 2013 and into 2014. There is evident caution in some of the responses, and some still are anticipating problems stemming from the next set of deadlines from Congress.