The U.S. manufacturing sector’s expansion continued in March and employment perked up, according to data released today by the Institute for Supply Management, indicating mildly expanding activity. The ISM sub-indexes last month improved also. The new orders index increased, as did the production index, the factory employment index and the inventory index. However, construction spending decreased by 1.1% –the biggest drop since July.
We watch the ISM index to gauge the economy’s performance. However, a much more useful indicator for us is what our customers tell us. Typically, in a positive economy, our manufacturing customers acquire equipment in anticipation of demand, or to take advantage of new technologies and efficiencies new equipment can deliver, or to replace old equipment on a regularly scheduled basis. In today’s economy however, customers have to be more reactive, acquiring equipment only when ROI is absolutely compelling or to replace equipment well beyond its useful life. Activity in a sector will also factor into credit approval decisions. Because the manufacturing sector is on the upswing, lenders and lessors view manufacturing customers more positively. This is in contrast to the construction sector, causing construction sector companies to find credit harder to get.
ISM also reported that spending on construction projects in the U.S. fell for the second consecutive month. Private nonresidential construction–including office, commercial and infrastructure building–drove the decline, falling 1.6%. The building industry suffered greatly during the financial crisis, shedding more than 2 million jobs between 2006 and 2011. But more recently, the sector has somewhat regained its footing, adding nearly 100,000 jobs in the past year as construction projects have restarted in many areas of the country. A glut of cheap, foreclosed homes still on the market is keeping interest in new homes in check. But a report last month showed demand may be picking up as building permits reached their highest levels in nearly 3 1/2 years.