The survey’s September 2013 composite index, a leading indicator for the manufacturing sector, advanced to 66 from 58 in the June survey, the third straight quarterly advance and the highest level since the December 2011 reading of 66. For 16 quarters, the index has remained above the threshold of 50, the dividing line separating contraction and expansion.
The Composite Business Outlook Index is based on a weighted sum of the Prospective U.S. Shipments, Backlog Orders, Inventory, and Profit Margin Indexes, distilled from the input from 51 senior financial executives representing a broad range of manufacturing industries. Of those 13 indexes, 9 individual indexes increased, and 4 declined.
The Current Orders Index shot up to 70 from 53 in the previous report. The Export Orders Index rose to 61 from 45. Another double-digit jump was seen in the Profit Margin Index, which increased to 68 in September from 56 in June.
The Capacity Utilization Index, which measures the percentage of firms operating above 85 percent of capacity, increased to 30.0 percent in September from 21.2 percent in June; its long-term average is 32.0 percent. The Backlog Orders Index also rose, from 54 to 59.
The Inventory Index, based on a comparison of inventory levels in the third quarter of 2013 with those in the third quarter of 2012, dropped to 49 in September from 51 in June. This suggests that companies are neither drawing down nor building inventories.
Many of the Forward Looking Indexes are also showing a rise in positivity. Increases are seen in the Prospective U.S. Shipments Index (up to 76 from 67), the Prospective Non-U.S. Shipments Index (up to 70 from 60), and the Annual Orders Index (up to 81 from 64).
The Interest Rate Expectations Index fell to 71 from 81, indicating that fewer respondents believe that longer-term interest rates will rise by the end of the fourth quarter of 2013. The U.S. Investment Index also dropped to 53 from 65 in June, while the Non-U.S. Investment Index inched up to 54 in the current report from 53 in June. The Research and Development Spending Index also fell to 66 in September from 73 in June.
In a supplemental section, participants were queried on the impacts that low interest rates are having on companies and the timing and effects of the Federal Reserve Board’s intent to taper its quantitative easing (QE) program.
Ninety-one percent reported that their companies have seen their pension liabilities increase because of low interest rates, with 56 percent reporting that the increase has been significant. Sixty-one percent have had to add to their pension reserves because low interest rates have raised pension liabilities. Finally, 64 percent indicated that the Fed’s tapering of its QE program will have a moderately negative impact on the economy; 30 percent expect little, if any, impact.
IMF Predicts Reduced Growth for U.S. Due to Political Havoc
International Monetary Fund (IMF) analysts lowered their growth forecast for the U.S. economy in light of the spending cuts inflicted by the government sequester earlier this year. The IMF also warned that Washington’s political morass over the budget and debt ceiling could further hamper economic recovery.
In its new “World Economic Outlook,” IMF estimates the economy will grow 1.6 percent this year — 0.1 of a percentage point less than its July forecast. Growth is projected to accelerate to 2.6 percent next year, which is 0.2 of a percentage point lower than the previous forecast.
“The fiscal deficit reduction under the sequester is excessively rapid and ill designed, and it is expected to subtract between 1.5 and 1.75 percentage points from growth in 2013,” the IMF states in its outlook.
The IMF warned that the impasse over federal spending and the debt ceiling could have dire consequences.
“A longer shutdown could have sizable adverse growth implications,” the analysts note. “A failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world.”
The first week of the shutdown cost $1.6 billion in lost economic output, according to IHS Inc., a global market-research firm in Lexington, Mass. The national economy is losing an average of $160 million each workday during the shutdown, the firm’s analysts said.
A glimmer of resolution appeared Friday as the Obama administration and Congressional Republicans continued to push for a stopgap budget measure that could reopen the federal government and prevent an unprecedented default on the country’s financial obligations.
The shutdown, which began on Oct. 1, has furloughed roughly 770,000 federal workers. The Defense Department has since recalled most of the 350,000 civilian workers it put on furlough.
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Industrial Internet Could Save Industries $20 Billion Annually
By tightening metrology and freeing up human labor for more value-added activities, the Industrial Internet could save industry billions of dollars annually, according to a new report from GE.
The report, entitled The Industrial Internet@Work, Marco Annunizata, GE chief economist, and Peter C. Evans, GE director of global strategy and analysis, quantifies the way the industrial internet can more accurately and efficiently gather data about machines and provide analysis about production improvements. By transferring these duties to a comprehensive network system of data gathering, storage, analysis, and collaboration, industries can optimize the focus and productivity of workers.
“Gas turbine maintenance workers, for instance, do much of their service work on a set timetable and lack full real-time information about the condition of the turbine parts,” Annunziata said. “If they come too late and failure occurs, unplanned downtime can cascade across the system and affect the economy. A new, highly-skilled workforce will emerge as the Industrial Internet unleashes a new standard in efficiency that saves entire industries billions of dollars in unplanned downtime and turns industrial operators into skilled information-workers.”
In a breakdown of time and cost savings, GE reported that the Industrial Internet can help industries see 52 million man-hours and $7 billion saved in the power industry; 205 million man-hours and $10 billion in aviation; 52 million man-hours and $3 billion in rail; and 4 million man-hours and $250 million in healthcare.
The Industrial Internet, sometimes called the “Internet of Things,” refers to an analytical, web-connected network that monitors the data produced by functioning machines, motors, and other pieces of technology. Experts assert that the collection and analysis of this data across a broad range of industry can contribute to more efficient production, design, and operation techniques.
GE has heavily invested in the Industrial Internet, and claims these investments have already realized returns of $290 million in 2013, according to Reuters. The tech giant recently announced partnerships with AT&T, Cisco Systems Inc., and Intel Corp. to buttress its existing relationships with Amazon Web Services, Accenture Plc, and Pivotal.
Software and Equipment Investment Expected to Grow in 2013
The Q4 update to the 2013 Equipment Leasing & Finance U.S. Economic Outlook indicatesthat equipment and software investment will expand though the end of the year, with an overall forecast of 3.3 percent growth through 2013.
Among the factors that have hindered equipment and software investment growth, which slowed from 3.1 percent annualized growth in Q1 to 1.0 percent in Q2, are fiscal consolidation, surging oil prices, as well as renewed fiscal policy tensions.
Construction equipment investment will be a key driver of the modest uptick, which is up 38 percent year-over-year in the second quarter, yet the report indicates that leading indicators all decelerated recently, suggesting a negative correction could occur in the following three to six months.
Transportation equipment is expected have some growth, between 2 and 5 percent, and industrial equipment is expected to grow at a slightly faster rate in the remainder of 2013 than its 1.4 percent growth in Q2. Investments with weak or no growth include agricultural equipment, computers and software, and medical equipment.
In an announcement, William G. Sutton, the president of the Foundation and president and CEO of the Equipment Leasing and Financing Association said of the findings, “Equipment and software investment in 2013 continues to look like a tale of two halves, with slower growth in the first half of the year and modest improvement forecast for the second half. However, an atmosphere of uncertainty prevails, spurred by current fiscal policy debates, including the looming debt-ceiling fight, and a stubbornly tepid U.S. and global economy.”
Data Backlog, Shutdown Cause Jobless Claims to Spike
The number of Americans filing new claims for jobless aid touched a six-month high last week as a computer-related backlog of claims was processed and a partial U.S. government shutdown began to hit some non-federal workers.
Initial claims jumped by 66,000 last week to a seasonally adjusted 374,000. The bulk of the new claims are being attributed to California catching up on a backlog that went unprocessed several weeks ago due to computer upgrades. A Labor Department spokesman said that an additional 15,000 were the result of non-government workers who were laid off as a result of the partial government shutdown.
The less volatile four-week average rose 20,000 to 325,000.
The LA Times notes that federal employees who have been furloughed are eligible for jobless benefits. The Labor Department will track those applications separately. Those claims will be processed and published by next week.
In response to demands from economists and business owners, the jobless claims report will continue to be issued through the rest of the shutdown. All other data will be delayed indefinitely.
This article was originally published on ThomasNet News Industry Market Trends and is reprinted in its entirety with permission from Thomas Industrial Network. For more stories like this please visit Industry Market Trends.