In March, manufacturing hit a 37-year high, according to recent reports, due, in part, to strong growth in new orders—a clear sign of a potential economic boom underway. The announcement was preceded by a stellar growth month in February, when U.S manufacturing expanded at the fastest pace in the past three years.
“It’s certainly a good time to be a manufacturer,” said Garth Rummery, owner of Tharp Custom Cabinetry. “There’s a lot of pent up demand. So manufacturers like us are trying to keep up. We’re seeing a lot of growth in commercial construction as well as residential remodels and new home building.”
The most commonly recognized measurement of manufacturing growth is the PMI, which is a data point that should be looked at in greater context.
“The PMI index is a composite number based on a monthly survey of supply managers across a wide range of industries. It is comprised of multiple variables, such as employment, supply deliveries, prices, inventory levels and new orders,” said Barbara Davey, who works closely with manufacturing clients as BOK Financial’s® senior credit concurrence officer.
She said the results are particularly good news because they represent the tenth consecutive month of improved performance.
“We’ve had three recent developments which are game-changers for the economy: a settled national election, the development and accelerated rollout of the vaccine, and the recently passed $1.9 stimulus package, which contained a lot of provisions designed to give economic support to families,” she said.
The potential impact of consumer spending on a recovering economy is significant. Putting additional funds in the hands of consumers directly influences manufacturing and, in turn, economic growth.
Smaller manufacturers have more direct consumer interactions and are going to benefit quicker from consumers having more money to spend.
“Exactly a year ago, our business pretty much stopped,” said Rummery. “At the end of March and April 2020 things just went silent. We were struggling to figure out how to navigate a pandemic. Things were shutting down left and right, and we had to figure out how to run our manufacturing facilities where there are typically a lot of people working in close quarters.”
He said market demand went down rapidly as consumers halted all unnecessary spending out of concerns that a recession was around the corner.
“Fourth quarter and this year are much more optimistic. Orders are way up,” he said. “People are spending money again.”
Davey said manufacturing growth is often a key indicator of economic growth.
For now, manufacturers are celebrating but keeping a cautious eye on the future.
“There’s a good amount of business coming back to the U.S. from low-cost regions around the world. That’s a great thing, but it’s a stressor on the supply chain,” said Rummery. “There are a lot of factors at play, but overall, I think we’ll see this growth trend continue, and even accelerate, through the rest of the year.”
He said companies with strong balance sheets are in a good position to increase efficiency and strengthen that supply chain in one way or another.
“We’re looking at further automation and pretty big capital expenses over the next year or two,” he said. “That also drives demand. The equipment we’re buying triggers that manufacturer to add more jobs, which gives people more money to spend, which leads to them buying new homes and remodeling; therefore they need cabinets—which we supply. It’s a self-fulfilling trajectory upwards.”
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