PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Economic Data: Manufacturing Shows Signs of Life

By at 4 August, 2020, 9:10 am

by Raymond J. Keating-

Based on two reports published on August 3, U.S. manufacturing activity showed some signs of life in July.

IHS Markit’s U.S. Manufacturing Purchasing Managers’ Index (PMI) registered 50.9 in July, which was the first measure of expansion, albeit small, since February. IHS reported: “Overall growth was marginal but stemmed from the first upturns in output and new orders for five months, as client demand picked up. The contraction in employment softened despite further evidence of spare capacity as new sales rose. Greater optimism in the outlook was also reflected in an improvement in business confidence.”

Chris Williamson, Chief Business Economist at IHS Markit, noted: “Much of the recent improvement in output appears to be driven merely by factories restarting work rather than reflecting an upswing in demand… Many firms and their customers remain cautious in relation to spending in the face of re-imposed lockdowns in some states and worries about further disruptions from the pandemic. Encouragingly, business optimism about the year ahead has revived to levels last seen in February, but many see the next few months being a struggle amid the ongoing pandemic, with a more solid-looking recovery not starting in earnest towards the end of the year or even into 2021.”

The story was somewhat similar from the Institute for Supply Management, whose report on the manufacturing sector registered 54.2 percent, up by 1.6 percentage points versus June. The ISM report pointed to growth in new orders and production in July; supplier deliveries slowing; backlogs growing; and employment still falling.

It’s all decidedly mixed, but, again, with some key measures at least pointing in the right direction.

It’s also worth noting, as The Wall Street Journal did in this video, that small businesses tend to be largely missed, or underrepresented, in these measures, given that small businesses lack the manpower to respond to such surveys. In turn, it also must be noted that the manufacturing sector overwhelmingly is populated by small businesses, for example, with 74.8 percent of employer firms in the manufacturing sector having fewer than 20 employees and 93.4 percent fewer than 100 workers.

So, there’s a good chunk of activity in the manufacturing sector that remains a bit of a mystery for now.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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