The U.S. manufacturing sector grew again in April, marking the fifth consecutive month of expansion following a modest contraction in November 2012, according to the Institute for Supply Management’s (ISM) latest manufacturing Report on Business. However, the pace of growth slowed last month due to lagging employment numbers and declining inventories.
ISM’s purchasing managers’ index (PMI), a key monthly gauge of the factory sector, fell to 50.7 in April, down from 51.3 in March. Readings above 50 indicate overall expansion for the sector. The latest PMI was well below the 12-month average of 54.2. The new orders index rose to 52.3 last month, up from 51.4 in March, while the production index climbed to 53.5 from 52.2 the prior month.
“More new orders indicate companies may have to rebuild their stockpiles in the coming months. Order backlogs grew at a faster pace. Higher orders points to more factory output in the coming months,” the Associated Press reports. “Still, slower growth in manufacturing suggests some companies may be worried about across-the-board government spending cuts that began on March 1. The survey noted that one company tied to the defense industry mentioned that cuts had weakened its business in April.”
Despite the overall improvement, there were signs of lingering challenges for U.S. manufacturers. The employment index fell to 50.2 in April, down from 54.2 in March and suggesting factories cut back on hiring last month. Inventories plunged to 46.5 from 49.5, as manufacturers reduced stockpiles for the second consecutive month.
“Manufacturing activity was relatively strong in the first three months of this year, led by pent-up demand for motor vehicles and the housing rebound,” Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), noted. “Some of the production growth came from unwanted inventory accumulation; manufacturers are now in the process of adjusting inventories back down, leading to a soft patch in industrial activity that may persist for a few months. The fundamentals, however, point to moderate 3 percent manufacturing industrial production growth this year—slightly faster than the overall economy, but not much.”
Poor Worker Health Linked to Sharp Economic Losses
Absenteeism due to health and wellbeing problems is incurring steep losses to productivity among U.S. workers and draining a considerable amount of economic growth, new research indicates.
According to a new study from Gallup, the cost of above-normal weight and other chronic health conditions in terms of missed work across the American workforce is an estimated $153 billion each year. Losses tied to poor health range from $160 million annually in agriculture to $24.2 billion per year among professionals.
The findings are based on more than 94,000 interviews with American adults who work 30 hours or more per week. Apart from obesity, chronic conditions cited in the report include having been diagnosed with a heart attack, high blood pressure, high cholesterol, cancer, diabetes, asthma, or depression; and recurring physical pain in the neck or back or knee or leg in the last 12 months.
Of the 14 of the occupations analyzed, an average of 77 percent of workers were either above normal weight or had been diagnosed with at least one chronic condition over the course of their lifetimes, resulting in about one extra unhealthy day and close to one-third of a day more of missed work each month. The estimated cost of absenteeism to employers averaged $341 per missing employee per day.
Transportation workers, who represent 2.9 percent of full-time workers, report the worst physical wellbeing overall, with 86 percent citing subpar health. Among manufacturing workers, 82 percent suffer from chronic conditions or above-average weight, resulting in 0.24 extra missed work days each month and incurring $2.8 billion in lost productivity each year.
Contraction in Struggling Industrial Semiconductor Market
Top industrial semiconductor suppliers experienced contraction in 2012, according to the IHS iSuppli Industrial Electronics Market Tracker Report.
The IHS report found that the eight leading industrial semiconductor suppliers and two “gainer” suppliers that made up the top 10 each suffered from revenue contraction last year. These top firms had total revenues of $12.19 billion, accounting for 40.4 percent of the industry sector total.
Semiconductor supplier Texas Instruments (TI) posted $2.09 billion in revenue, down 6.6 percent from 2011. STMicroelectronics saw the second-highest revenue of $1.47 billion (down 11.6 percent), followed by Ingineon with $1.46 billion (down 19.3 percent), and Intel with $1.34 billion (down 7-8 percent).
“The industrial electronics semiconductor industry as a whole contracted 5.4 percent in 2012 following a slowdown in worldwide markets where the chips are used, such as in security, test and measurement, motor drives, metering, medical electronics, and renewable energies,” Jacobo Carrasco-Heres, analyst for industrial electronics at IHS, noted. “The anemic performance of these segments, in turn, dragged down the suppliers making the chips, resulting in 2012 revenue losses among the Top 8 that ranged from 0.7 percent to 20.4 percent.”
Global Petrochemical Prices Drop
Plunging costs for key materials, particularly olefins, have led to steep drops in global prices for petrochemicals, which are used to make plastic, rubber, nylon, and other consumer products, and play an important role in manufacturing, construction, pharmaceuticals, aviation, and electronics.
The latest monthly Platts Global Petrochemical Index (PGPI) found that prices in the $3 trillion global petrochemicals market fell 5 percent to $1,309 per metric ton in April. Olefins, a group of hydrocarbon compounds that serve as building blocks for many petrochemicals, saw the steepest declines last month.
“Ethylene was particularly weak,” Jim Foster, Platts senior petrochemicals analyst, noted. “Not surprising since crude oil prices declined, as did naphtha prices. With naphtha determining the marginal price for ethylene, ethylene prices had to follow.”
The average ethylene price in Asia fell 5 percent to $1,232 per metric ton in April, as raw material input costs dropped, lowering downstream demand. Scheduled factory closings in Japan and South Korea are expected to further decrease ethylene demand in coming months.
Jobless Claims Fall to Five-Year Low
New initial jobless claims fell sharply in the latest week reported, hitting their lowest level in nearly five and a half years and signaling labor market strength in the face of fiscal cutbacks. According to the U.S. Department of Labor, seasonally adjusted unemployment insurance claims for the week ending May dropped to 323,000, a decrease of 4,000 from the previous week.
Moreover, the four-week moving average, which smooths out volatility and provides a more accurate long-term picture, fell by 6,250 to 336,750, the lowest level since November 2007 near the start of the economic recession.
“The third weekly decline confounded economists’ expectations for a rise to 335,000. Layoffs remained contained even as other parts of the economy such as manufacturing showed strain from belt-tightening in Washington,” Reuters explains. “The improvement in employment contrasts with a range of other data that have suggested a cooling in the economy.”
Despite signs of improvement, U.S. jobless figures remain high, with an estimated 11.7 million people still counted as unemployed and about 3 million filing for the second week or more of unemployment benefits.