Business

Wood Products Up Despite Economic Turmoil

By Mike Botta

December 8, 2011 – While the deep financial troubles in Europe deepen and the fragile U.S. economy seems to be barely limping along, recent reports indicate some encouraging trends.

The Institute for Supply Management’s (ISM) “Report on Business” released last week shows that economic activity in the manufacturing sector expanded in November for the 28th consecutive month as the overall economy grew for the 30th consecutive month.

The ISM reported that the Purchasing Managers Index (PMI) registered 52.7 percent, an increase of 1.9 percentage points when compared to October's reading of 50.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

The New Orders Index increased 4.3 percentage points from October to 56.7 percent, reflecting the second month of growth after three months of contraction, according to ISM.

While the Prices Index, at 45 percent, increased 4 percentage points from the October reading of 41 percent, prices of raw materials continued to decrease for the second consecutive month, registering below 50 percent.

Wood Products Shine

Of the 18 manufacturing industries, eight reported growth in November, led by wood products. The others, in order, were textile mills; petroleum & coal products; primary metals; food, beverage & tobacco products; computer & electronic products; apparel, leather & allied products; and paper products.

The nine industries reporting contraction in November, listed in order were miscellaneous manufacturing; nonmetallic mineral products; plastics & rubber products; printing & related support activities; electrical equipment, appliances & components; chemical products; fabricated metal products; transportation equipment; and machinery.

Wood products also led the entire field in new orders and production, and came in second behind textile mills in employment growth in the month, according to ISM. Wood products appeared to be flat – neither increasing nor decreasing – in most other categories.

Respondents cited continuing concerns about the general economic environment, government regulations and European financial conditions, but are cautiously more optimistic about the next few months based on lower raw materials pricing and favorable levels of new orders, Bradley J. Holcomb, chair of ISM’s Manufacturing Business Survey Committee, said.

Leasing Volume Up

A week earlier, just prior to the Thanksgiving holiday, The Equipment Leasing and Finance Association (ELFA) also reported some encouraging news for the manufacturing sector.

The ELFA “Monthly Leasing and Financing Index” (MLFI-25), released November 22, indicated that overall new business volume improved in October.

The index, which reflects the volume of commercial equipment financed in the U.S., showed volume in October totaled $6 billion, a 22 percent increase compared with the same period in 2010.

Year-to-date cumulative new business volume for 2011 was up 25 percent, the association reported. However, volume was down 16 percent from the prior month.

“The October decline in new business volume (versus September) had more to do with typically strong end-of-third-quarter activity than a slowing demand for lease financing of assets by U.S. businesses,” William G. Sutton, president and CEO of ELFA, said.

“While concerns about the global credit markets continue to make headlines, American businesses continue to invest in productive equipment that will help keep the economy steadily moving in the right direction,” Sutton added. “Credit quality is strengthening, laying the foundation for economic expansion and stability as we lead into the New Year.”

Receivables over 30 days were the lowest in more than two years, decreasing 2.2 percent in October, according to the report. Charge-offs also declined to 0.7 percent, ELFA reported.

Confidence Level Improves

The number of approved lease applications decreased slightly to 76.3 percent from 76.5 percent the previous month. But, 59 percent of participating organizations reported submitting more transactions for approval during the month.

Total headcount for equipment finance companies in October was unchanged month to month and down 1.4 percent year over year. Supplemental data showed that the construction and trucking industries led the underperforming sectors.

A separate monthly index by the Equipment Leasing & Finance Foundation, a non-profit affiliate of ELFA, set the “confidence” level in November at 57.4, up from the October index of 50.7. ELFA said the increase in confidence indicates improved optimism about business activity despite ongoing concerns about the global economic situation. 

But …

Despite that optimism, economic uncertainty still weighs heavily on the sector.

The Commerce Department’s latest “Manufactured Durable Goods Report,” issued November 23, showed that new orders declined in October for the second month in a row and demand for non-defense capital goods decreased, possibly indicating a slowing down of economic growth of the U.S.

Transportation equipment had the largest decrease (-4.8 percent) in new orders but had the largest increase in shipments (5.2 percent). Transportation equipment inventories increased 0.7 percent.

Overall inventories for durable goods increased slightly (0.5 percent) in October while overall unfilled orders increased marginally (0.2 percent). The machinery sector registered the largest increase in unfilled orders for the month (1.5 percent). 

The Commerce Department report is compiled from results of the U.S. Census Bureau’s “Manufacturers’ Shipments, Inventories, and Orders (M3)” survey.