Rough times seen for manufacturing

Report finds some sectors still depressed

new orders dip despite overall growth

September 08, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

The manufacturing sector, generally considered on the upswing after a long slump, seems to be losing momentum and could face rough going over the next few months, a recent report warns. And there are indications that many industries remain depressed.

The Institute for Supply Management reported last week that while manufacturing expanded last month for the seventh straight month, new orders contracted. The group's Purchasing Managers Index stood at 50.5 percent. That reading, though above 50, which indicates growth, was below many economists' expectations and quite a bit lower than readings earlier in the year.

Additionally, the report said new orders, which make up 30 percent of the PMI, were contracting, coming in at 49.7 percent.

"New orders is a leading number. It tells us what the next month or two are going to look like," said Norbert J. Ore, chairman of the Institute for Supply Management's Manufacturing Business Survey Committee and a group director for the Georgia-Pacific Corp. "Some believe it leads by 60 to 90 days, so we could see more impact on production in September."

Production, deliveries and new export orders grew last month, and customers' inventories came in at 42.5 percent, in the "too low" category, meaning customers will need to replenish supplies soon.

The survey also found that imports grew and employment contracted.

Ore said he thinks July, which was filled with news of corporate wrongdoing, was a particularly rough time and that it spilled over into August.

"I think July comprised one of those defining economic events that plays havoc with the business cycle," he said. "The problem is you can lose [confidence] in a month, but you can't get it back in a month. That's the paradox of confidence, or trust."

Of 20 manufacturing industries surveyed, eight reported growth last month: transportation and equipment; leather; apparel; chemicals; food; industrial and commercial equipment and computers; paper; and printing and publishing.

"Book manufacturing is doing pretty well across the country," said David R. Gischel, vice president and co-founder of Victor Graphics Inc., a Southwest Baltimore company that prints material for colleges and universities.

He said business isn't growing but is fairly steady, more than can be said for the commercial printing industry.

"Printing has been miserable for approximately a year and a half, but in July we had a lot of positive reports from printers. We probably had some sales growth in July," said Art Stowe, president, Printing and Imaging Industries of Maryland, who said he has not received reports on last month's sales. "We were surprised that July was pretty good; it's traditionally a slower month. But it was a nice respite after 12 to 14 months of dog, dog, dog."

He said several area businesses, including the 50-employee Associated Printers, have closed in the past year because of the downturn in the sector.

"Others are just tightening their belts and hanging on for the ride," he said, "and hoping it will get better."

Paul Engle, a manufacturing consultant for Grant Thornton LLP in Baltimore, said most of the businesses he deals with are entering their sixth or eighth quarter of lower bookings.

"The slope of the decrease has flattened out, no question, but the people we talked to, especially in the capital equipment sector, commercial construction, industrial construction and industrial goods in general, really have not seen any light at the end of the tunnel," Engle said. "We don't know of anyone, other than residential construction and consumer goods, who are seeing any kind of serious uptick at all."

Other reports last week found that the nation's unemployment level fell slightly last month, to 5.7 percent, but that factory jobs shrank by 68,000 after four months of losses that averaged 18,000.

David Huether, chief economist for the National Association of Manufacturers, said one reason the manufacturing recovery is not moving faster is that companies aren't spending on new equipment and building improvements. "Based on surveys we've done, we will not see it till next year," he said.

Still, he said, "I think the glass is more half-full in the sense that we're definitely seeing a recovery going on. ... The question is, when will there be a recovery in employment? I think it will remain at or near where it is now for the next three to four months and that we will start to see a recovery some time beginning next year."

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