Manufacturing Figures Show Promising Rise

NEW YORK CITY-A new poll from PricewaterhouseCoopers revealing greater optimism among US manufacturers and a report from the Institute for Supply Management (ISM) showing October jumps in several of its manufacturing activity indexes suggest industrial property owners could soon start seeing a boost in leasing demand. The changes were bolstered by late October news from the Commerce Department reporting 1% increase in bookings for durable goods in September as well as the first rise in the nation’s GDP since Q2 2008.

The PricewaterhouseCoopers poll, which surveyed senior executives at 60 industrial manufacturers from mid-July to mid-October, found that 48% of US-based industrial manufacturers feel optimistic about the US economy over the next year, up from 43% in Q2. At the same time, only 23% of respondents expect their own businesses to regain strength before June, though another 45% expect to see business improve in the second half of next year. An additional 17% anticipate recovery the following year, while the remainder foresees no improvement for several years, if ever.

Significantly, the number of companies anticipating revenue growth over the coming year showed an even greater jump from Q2, with 57% answering positively in Q3 compared to only 43% three months earlier. On the other hand, 42% worry that profits might fall. Though 75% expressed some level of concern about a lack of demand, the figure was down from 82% in Q2. And while only 25% of respondents indicated they plan to add employees over the next 12 months, that figure also was up from the preceding quarter. In addition, 37% now plan to make major capital investments, compared with 27% in Q2.

According to the Tempe, AZ-based ISM, October marked the third consecutive month of growth as measured by its various indexes. Among the monthly readings showing marked improvement werethe factory services index, which rose to 55.7% from 52.6% in September; the employment index, which went to 53.1% from 46.2%; and the business activity, which rose 3.1 points to 55.7%, its highest rate of growth since April ’06. Numbers above 50 indicate expansion, while those below indicate contraction. Probably the most encouraging change came in the production index, which surged 7.6 points to 63.3%.

The report is prepared by ISM’s manufacturing business survey committee. Committee chair Norbert J. Ore says the significant gains in production and employment are particularly good news. “Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers,” he notes. “Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode.”

Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI in Arlington, VA backs Ore’s view, calling the October report very good news. “An increase in manufacturing production in October, as the report signals, adds to the evidence that the worst post-World War II recession has ended and a lasting recovery is underway,” he says, adding that inventory stabilization and the federal stimulus likely provided much of the current momentum.

But despite the positive changes, MAPI senior economist Cliff Waldman says the outlook for the coming year remains clouded. “Historic excess capacity will be an impediment to a business investment turnaround,” he observes, “while a soft global economic rebound will likely preclude a strong recovery in overseas sales of US manufactured goods.”