Economic activity in the manufacturing sector expanded in March for the first time in the last six months, while the overall economy grew for the 82nd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
Of the 18 manufacturing industries, 12 are reporting growth in March in the following order: Printing & Related Support Activities; Furniture & Related Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Machinery; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; Paper Products; Primary Metals; and Computer & Electronic Products. The five industries reporting contraction in March are: Apparel, Leather & Allied Products; Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; and Petroleum & Coal Products.
The Institute for Supply Management’s (ISM) manufacturing index for March, 2016, was 51.8%.
Manufacturing expanded in March as the PMI® registered 51.8 percent, an increase of 2.3 percentage points from the February reading of 49.5 percent, indicating growth in manufacturing for the first time since August 2015 when the PMI® registered 51.0 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March PMI® indicates growth for the 82nd consecutive month in the overall economy, while indicating growth in the manufacturing sector for the first time in the last six months. Holcomb stated, “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through March (49.8 percent) corresponds to a 2.1 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI® for March (51.8 percent) is annualized, it corresponds to a 2.7 percent increase in real GDP annually.”
The ISM’s manufacturing index is based on these 5 main indicators’ data from their monthly surveys:
- Production levels
- New orders placed
- Inventory levels
- Supplier deliveries
- Employment environment
Current problems in the oil business means problems with transportation and energy. These are key ingredients in the world of manufacturing.
As we all know the growth in oil extraction via new fracking technology has transformed the US oil business. If you are involved in this business the very recent past is likely to have been very problematic, following boom times. As reported above, there has been a business decline as prices have plummeted.
Good for us consumers but bad for the oil business? Perhaps not. We would appreciate your comment contributions on our blog.
For decades the Saudi’s and their OPEC partners have largely controlled the market price of oil. This control is accomplished by management of the overall oil supply at a level necessary to bring roughly $100/barrel over the past couple of years, and up until very recently.
In recent years both Russia and now the US produce 10-11 million barrels/day, which is about the same level as Saudi Arabia. These 3 countries produce about 35% of the entire world’s oil supply. These non-mideastern sources represent a reduction in the Saudi’s ability to control the world oil market.
Recently we have seen a sharp decline in the price of oil, and thus the gasoline price at the pump. While we are reluctant to wander into the world of geopolitics, this situation could represent a big warning, and one in contrast to the otherwise rosy economic news.
Saudi Arabia has maintained production in the face of the decline in oil prices, in contrast to previous low price occurrences. Some believe this is in order to cull the higher cost producers in some sort of long term strategic maneuver. The higher cost producers include Russia, Iran, the North Sea producers, and our own higher cost frackers. As these producers have grown, the Saudi influence has lessened and so we may be witnessing their response.
The Saudi’s actions may well explain the decline in petroleum reported above, and could represent a long term danger for the US oil and gas industry generally. Evidently the Saudi oil is the low cost supplier, so they may be able to withstand extended lower prices while the other suppliers are eliminated. Then they can better manipulate production in order to ensure prices are where they want—at a level needed to fund their welfare state and the lavish life of the many royals.
Over the long term many expect oil and gas growth to represent a major US economic boom. Yet here we see a geopolitical aspect that could counter our potential success. So a word to the wise is to keep a sharp eye on US-Saudi oil relations, especially in light of the “28 page report” shown on the 4/10 60 Minutes show.. Our new capacity means we have new leverage, but not without risk, especially to the higher cost producers.
One element of good news is that because transportation from country to country of natural gas is far more difficult than oil, the great increase in natural gas found in the US should be an attractive feature for energy in years to come. We shall see.