Buyers a bit more upbeat

Fierce global competition may prevent price increases in 2005.

Staff -- Purchasing, 2/3/2005

U.S. factories picked up the pace a little in January from the 17-month low recorded in December, but there was no ringing endorsement of an imminent manufacturing expansion on the near-term horizon. PURCHASING magazine's latest survey of buyers shows national manufacturing activity rising to 55.4 in January from 52.9 in December on an index where a reading above 50 indicates the factory sector is growing.

However, barely one-third of the buyers reported improved business—and the weakest region was the Midwest, the hub of heavy manufacturing. That meshes with the latest report from the National Association of Purchasing Management's Chicago business activity index, which shows manufacturing in the industrial heartland of the Midwest down to 61.

"Business is normally slow during this time of the year," says the international services manager in Missouri for a manufacturer of electrical and electronic products. "It's not unusual for business activity to slow down some at the end of one year and the beginning of the new one," adds the buyer of a defense-related aviation and ground systems company in Washington State. The materials management director for a California-based components distributor worries that "the electronics industry appears to be flat to slightly down when looking forward."

Among the industries where buyers are concerned: furniture, telecommunications equipment, industrial textiles, environmental testing equipment, motors and power transmission machinery and industrial fasteners.

Economists note that manufacturing represents about one-sixth of the $10.9 trillion a year U.S. economy. One of the biggest manufacturing arenas is automotive, but the chief purchasing officer of a Tier I supplier in Michigan reports: "The automotive market is nervous at this time since production has been cut to get inventories of unsold vehicles in line. Atop that, the domestic producers are losing market share to imports. And the high steel prices from material bought last year have dramatically impacted earnings for the car makers and their suppliers."

Buyers generally agree with economists that U.S. manufacturing continues to face fierce global competition, which prevents price increases, coupled with the threat of not having enough skilled workers in the years ahead. Manufacturing accounts for 13% of the gross domestic product and 11% of employment, points out one Illinois-based supply manager. "When manufacturers struggle, so does the rest of the economy."

But not all market reports are gloom and doom. "Business is very good" for a flow-control equipment maker in Texas while "business is going up" at a Michigan medical accessories plant. And the buyers at numerous parts and components production sites comment that "sales are going up" in January, especially when compared with November and December. "This year looks very strong," says the inventory control manager at an engineering diagnostics plant in Alabama. "Incoming orders are increasing slightly," adds the buyer at a communications equipment plant in Georgia.

Norbert Ore, chairman of the Institute of Supply Management's manufacturing business survey committee, is optimistic about 2005 because he touts 2004 "as a strong year for overall manufacturing index, which averaged just about 61." Likewise, even with the fourth quarter slippage, PURCHASING magazine's index averaged 66 for the previous year. "Business in the last quarter was up and we're keeping our fingers crossed that it continues this quarter," says the purchasing director of a precision abrasives manufacturer in Missouri. "Our company experienced steady growth this past year," says the purchasing manager of a robotic equipment manufacturer in Wisconsin. "Business already this year seems to be picking up further."