Commentary > The Hays Files
Reluctant manufacturers
ISM data shows manufacturing recovery is slow at best.
January 29, 2003: 4:38 PM EST

Retailers may be celebrating some bright holiday shopping numbers - but the outlook isn't so merry for the nation's manufacturers.

An index compiled by the Institute for Supply Management remained below 50 in November for the third month in a row -- that means manufacturing is still contracting and has yet to fully recover from last year's recession.

"It's not the most severe recession in manufacturing but because we're so slow coming out in terms of recovery, it is hurting a lot of manufacturers, it's very widespread, affecting almost all manufacturing," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

Rising production was the only real positive in the report - but some wondered how long it can last. New orders weakened in November and the outlook for jobs grew more negative too.

"What we see is manufacturers are increasing production slightly but only enough to meet demand," said Mickey Levy, chief economist for Bank of American Securities. "They`re not really comfortable enough to build inventories or hire a lot yet, but things are improving modestly."

Modest gains in production, though, won't do much to help manufacturing workers. Manufacturers have cut jobs for 28 months in a row through October, shedding 1.9 million workers.

One big problem for manufacturers is recent volatility in consumer spending -- especially in the auto sector where shoppers have responded positively to auto financing incentives one month only to pull back when incentives are removed. Who wants to build inventories if you can't depend on spending from one month to the next?

But spotty demand is only one part of the problem. Ironically, super-strong productivity gains are another part. Workers are so efficient that until the economy is growing a lot more strongly and companies see a lot more demand for their products, they just don't need as many workers to produce their output. So they keep laying people off.

And that's the problem with a slow economic recovery: it doesn't bail some industries out quickly enough.

As for the tepid nature of the recovery recently, the ISM partly blamed the situation in Iraq for the softness in manufacturing, saying the uncertainty it creates is a deterrent to business.

That's a lingering worry on Wall Street and among economists.

Meckstroth said that uncertainty is restraining long term planning because " it reduces the propensity to take risk, which virtually all capital spending is about -- spending money now for future orders."  Top of page

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