Manufacturing Activity At Highest Level Since 1983
By Andrew L. Jaffee, December 2, 2003
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U.S. manufacturing activity has risen to levels not seen since 1983. The Institute for Supply Management (ISM) released its measure of factory activity, called the "ISM manufacturing index," yesterday. The index rose to 62.8% for November, much better than October's 57.0% reading, September's 53.7%, and 54.7% in August. On the one hand, this is not surprising since the economy is recovering. On the other hand, this is surprising given that U.S. manufacturing has been in steay decline.

So what does an ISM manufacturing index reading of 62.8% mean? Don't let the numbers and terminology scare you. According to CBS MarketWatch:

Readings over 50 percent indicate that most manufacturing firms surveyed said business was getting better -- or at least, no worse. The ISM index is considered one of the most reliable leading indicators for the factory sector and, by extension, the broader economy.

And there was another positive note in the ISM numbers: A measure of new orders received by manufacturers rose to 73.7% in November versus 64.3% in October. Coupled with a surge in consumer confidence, this means consumers will demand more, and factories will stay busy fulfilling that demand, at least through the holidays.

Does this mean U.S. manufacturing is making a comeback? I'm not sure I can answer "yes" to that question. Technology has replaced the need for many jobs. Global trade has allowed less developed economies to provide cheaper labor. Most likely the improved numbers mean U.S. manufacturers are adapting to the changing world economic climate. One way they've done this is by using "supply management:"

supply chain management is a recent term used to characterize all of the inter-related components and processes required to ensure the correct amount of product is in the correct locations at the right time and at the lowest possible cost. Many software firms and consultants have created large organizations to teach the intricacies of supply chain management to large corporations as the cost benefits of maximizing their supply chain can yield a large multiple in returns.

In other words, to stay competitive, U.S. companies have had to make their operations more efficient. I doubt the U.S. will ever see the old manufacturing heydays. But manufacturers can adapt and survive by producing very specialized and/or high-quality products (too complex for underdeveloped countries), by improving customer support, and of course by getting more efficient (which can be great for the environment). If you are interested in exploring the intricacies of supply management, click here.


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