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Keeping Tabs on Manufacturing Growth

By AICC Staff

December 5, 2018

width=300Keeping up with trends in customers’ market conditions is an important task for any independent corrugated converter. This article provides information and tips on where to look and how to use the information that is available. Since most corrugated containers are used by manufacturers to protect their goods during transport and promote them to consumers, this article will focus on the manufacturing sector.

There are two primary indicators of manufacturing conditions in the U.S. The first is the Purchasing Managers Index® (PMI), published monthly by the Institute for Supply Management. It provides the results of a monthly survey of more than 400 manufacturing supply chain managers in 18 industry sectors on the first business day following the survey month. That makes it especially useful as a first indicator of how manufacturing performed during the month immediately past. The survey results are published as diffusion indexes, which are calculated as the percent responding growth of a factor such as inventory, production, etc., plus half of those reporting no change (the other half of the no change responses are considered as negatives).

width=300The PMI is a composite index based on the diffusion indexes of five monthly indexes with equal weights: new orders (seasonally adjusted), production (seasonally adjusted), employment (seasonally adjusted), supplier deliveries (seasonally adjusted), and inventories. The survey results are not usually revised after initial publication. Additional diffusion indexes, such as prices, backlogs, customer inventories, new export orders, and imports, are also published along with other survey details at www.instituteforsupplymanagement.org/ismreport.

For those who want to take a deeper dive into manufacturing conditions, the narrative included in each month’s Report on Business discusses statistics in each category and provides selected commentary from respondents. It also lists the commodities up or down in price and commodities or components in short supply.

The chart at top right shows how the PMI has varied since 2008. Particularly since the middle of last year, the index has been consistently signaling very broad growth.

width=300The survey asks whether the time needed for delivery of supplies needed by manufacturers is increasing or decreasing, and shows the results as the supplier deliveries index, as shown in the chart at right. Higher values mean longer delivery times. Currently, a historically high percentage of manufacturers are reporting extended deliveries and are commenting that labor shortages and transportation bottlenecks are constraining deliveries. Here is what the September Report on Business had to say about delivery performance: “This is the 24th straight month of slowing supplier deliveries and indicates the supply chain’s difficulty in keeping up with new order and production demand. Lead times continue to extend, supply chain labor continue to restrict performance, and transportation are limiting supplier execution.”

As strains on the supply chain increase, it becomes less likely that manufacturing growth will climb, even as demand for goods continues to remain robust.

width=300The second widely used indicator of manufacturing growth is the report on industrial production published midmonthly by the Federal Reserve. At the most summarized level, industrial production includes activity in the mining, utility, and manufacturing sectors.

For independent boxmakers, the manufacturing sector is the most important. Historically, more than three-quarters of all box shipments are used by producers of nondurable goods such as food and other consumables expected to last for three years or less. That makes the series on nondurable goods manufacturing the most relevant for the corrugated industry. Monthly data becomes available around the middle of each month for the preceding month, and revisions to the past five months’ data are provided as more complete information is received by the Federal Reserve.

width=300The chart at right shows the monthly performance of the indexed production of nondurable consumer goods since 2016. Starting in the fourth quarter of last year, production of these consumable goods has outpaced prior-year data every month. The resulting growth through August this year is 2.5 percent above last year’s eight-month total.

For boxmakers that want to explore factory production in greater detail, the data tab on the Federal Reserve website, www.federalreserve.gov, provides a portal to industrial activity and a detailed set of indexed factory production data for myriad sectors. One of importance to many boxmakers is the food manufacturing sector. The chart at right documents the above-average performance of this sector, where production has grown by 4 percent this year.

Whether you prefer to look at the earliest available ISM survey data or the Federal Reserve’s midmonth indexed data, they both offer the opportunity for you, the independent boxmaker, to keep your fingers on the pulse of your customers’ market conditions.


PortraitDick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.