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Manufacturing & The Economy

IMF Downgrades World Economic Outlook

Global growth for 2015 is projected at 3.1%, 0.3% lower than in 2014, and 0.2% below the International Monetary Fund’s (IMF) forecasts last quarter.

Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.

In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies. 

Why the Manufacturing Skills Gap Hasn’t Hit Bottom Yet

Over the next decade, new research from The Manufacturing Institute suggests, nearly three and a half million manufacturing jobs likely need to be filled and the skills gap is expected to result in 2 million of those jobs going unfilled.

There are two major contributing factors to the widening gap – baby boomer retirements and economic expansion. An estimated 2.7 million jobs are likely to be needed as a result of retirements of the existing workforce, while 700,000 jobs are likely to be created due to natural business growth.

In addition to retirements and economic expansion, other factors contribute to the shortage of skilled workforce, including loss of embedded knowledge due to movement of experienced workers, a negative image of the manufacturing industry among younger generations, lack of STEM (science, technology, engineering and mathematics) skills among workers and a gradual decline of technical education programs in public high schools. 

ISM Manufacturing Index at Lowest Level in 2+ Years

According to the Institute for Supply Management (ISM), manufacturing expanded in September as the PMI registered 50.2%, a decrease of 0.9% from the August reading of 51.1%, indicating growth in manufacturing for the 33rd consecutive month. The September PMI is the lowest reading since May 2013 when the PMI registered 50.1%.

The September PMI indicates growth for the 76th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 33rd consecutive month.

Chairman of the ISM Manufacturing Business Survey Committee Bradley J. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (52.2%) corresponds to a 2.9% increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for September (50.2%) is annualized, it corresponds to a 2.2% increase in real GDP annually."

U.S. Added 142,000 Jobs in September

Total nonfarm payroll employment increased by 142,000 in September, and the unemployment rate was unchanged at 5.1%, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care and information, while mining employment fell.

Employment in other major industries, including construction, manufacturing, wholesale trade, transportation and warehousing, financial activities, and government, showed little or no change over the month.

The change in total nonfarm payroll employment for July was revised from +245,000 to +223,000, and the change for August was revised from +173,000 to +136,000. With these revisions, employment gains in July and August combined were 59,000 less than previously reported. Over the past 3 months, job gains have averaged 167,000 per month. 

Manufacturing PMI at Second-Lowest Level Since Oct. 2013

U.S. manufacturing companies indicated another month of relatively subdued growth in September, following the 22-month low recorded in August. Reflecting this, both output and new business volumes continued to expand at slower rates than those seen earlier in 2015, which contributed to a marked slowdown in job creation during the latest survey period. A renewed fall in input prices provided support to operating margins in September.

That said, factory gate charges were unchanged over the month, which ended a three-year period of sustained output price inflation. At 53.1 in September, the final headline seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) was up only fractionally from August’s 22-month low of 53.0. Although still above the neutral 50.0 threshold, the latest reading was one of the lowest recorded over the past two years, thereby indicating a relatively subdued improvement in overall business conditions in September. Of the five index components, a slowdown in employment growth since August was the main negative influence on the headline PMI. 

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