The Institute for Supply Management reported that factories in the U.S. continued to expand in March at a strong pace. ISM’s diffusion index declined less than a half point to 57.2 from 57.5 in February, but is still well within traditional growth territory. The manufacturing index has increased six of the last seven months.
Gus Faucher, deputy chief economist at PNC Financial Services, said manufacturing is now expanding again after slightly contracting in 2015 and 2016. “The industry is benefiting from continued consumer demand, a turnaround in energy production, and an end of the strengthening of the U.S. dollar,” said Faucher.
Here are 4 things that defined the manufacturing sector in Q1.
1. U.S. manufacturing is becoming more competitive on the global market. American manufacturing has become increasingly competitive on the global market due to the rising costs of global transportation and labor in foreign markets. Foreign investment in the United States is near an all-time, and the Department of Commerce reports that manufacturing accounts for roughly 70% of all FDI inflows.
The 2016 Global Manufacturing Competitiveness Index found that by 2020, the U.S. is expected to surpass China and take the top spot for global manufacturing. Deloitte and the Council on Competitiveness said that talent, cost competitiveness, workforce productivity, and supplier network are growing manufacturing in the United States.
2. Demand for goods continues to grow. A robust economy is continuing to support growth in demand for manufactured products. Strong demand for U.S.-made goods is continuing to rise with notable growth in new orders, production, and backlogs of orders.
The Manufacturers Alliance for Productivity and Innovation forecasts that output of “miscellaneous” manufacturing and food manufacturing will grow at more than 2% in 2017 while output in motor vehicles, apparel, and primary metals will decline.
3. It’s becoming harder to find talent. On the downside, the manufacturing sector is continuing to struggle with recruiting and retaining talent. According to data from ISM, most manufacturers are adding workers or asking them to work longer. The ISM employment index is now at 58.9%, the highest level since 2011.
4. There could be a “Trump bump”. While data indicates American manufacturing was already on an upswing well before President Trump took office, some manufacturers have been upbeat on Trump.
A first quarter outlook survey by the National Association of Manufacturers found that the outlook by manufacturers is at an all-time high. More than 93% of manufacturers say they are either somewhat or very positive about their company’s outlook, compared to 56% a year ago. The report said that manufacturers of all sizes are “less concerned about the business climate” with Trump in office.
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