Manufacturing Closed Out 2020 on a Growth Note

By at 5 January, 2021, 8:14 pm

by Raymond J. Keating-

Manufacturing continued to recover at the end of 2020, according to major surveys of manufacturing activity – with one measure pointing to particularly strong gains in December. At the same time, the pandemic persists as a source of disruption and uncertainty.

The IHS Markit U.S. Manufacturing PMI, for example, highlighted increases in output and orders in December. However, it was noted in the report the rate of expansion decelerated due to the expansion in coronavirus cases.

Among the key points made:

● “Amid a significant deterioration in vendor performance, cost burdens and selling prices soared, as firms sought to partially pass on higher input prices.”

● “Production growth remained marked in December, despite the rate of expansion easing slightly from November’s recent high. The pace of increase was the second-strongest since March 2015. Companies continued to link the rise to the release of pent-up demand, but some did temper this by stating that greater virus cases dampened output growth at the end of 2020.”

● Chris Williamson, who is the chief business economist at IHS Markit, noted, “More encouragingly, producers of machinery and equipment reported sustained strong demand, suggesting companies are increasing their investment spending. Producers of inputs to other factories also fared well, as manufacturers sought to restock their warehouses.”

The growth in capital goods production is a vital sign for future growth.

Meanwhile, the Institute for Supply Management’s Manufacturing PMI beat market expectations. Coming in at 60.7 percent in December, it was up from 57.5 percent in November.

Timothy R. Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee, pointed out:

“The New Orders Index registered 67.9 percent, up 2.8 percentage points from the November reading of 65.1 percent. The Production Index registered 64.8 percent, an increase of 4 percentage points compared to the November reading of 60.8 percent… The Employment Index returned to expansion territory at 51.5 percent, 3.1 percentage points higher from the November reading of 48.4 percent… Manufacturing performed well for the seventh straight month, with demand, consumption and inputs registering strong growth compared to November. Labor market difficulties at panelists’ companies and their suppliers will continue to restrict the manufacturing economy expansion until the coronavirus crisis ends.”

It’s encouraging to see, despite ongoing challenges, that the manufacturing sector seems to continue recovering. And yes, that is a much-needed good news story for small business, given that small businesses overwhelmingly populate the manufacturing sector, with 93.4 percent of employer manufacturers having fewer than 100 employees.

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


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