The manufacturing industry appears to be experiencing a revival, which could indicate businesses expect stronger consumer purchasing in the coming months and global supply chains may soon be flooded with additional products. Both global and domestic manufacturing experienced positive gains in January, and performance indicators are up across the board.
Global numbers strong
The recently released JPMorgan Global Manufacturing PMI shot up in January, reaching 51.5, the second consecutive month the index has hit above 50, the number which signals growth. Any number below 50 indicates the industry is contracting. Strong numbers may indicate companies are boosting production as they see economic improvement and expect consumer purchasing to increase.
Much of the growth came from emerging markets, according to the report. Countries like Brazil, Russia, India, Turkey and Taiwan saw output increase, which could signal companies are taking advantage of new low-cost production hubs to enjoy lower manufacturing labor costs.
"The global manufacturing sector has made a bright start to 2012, with the PMI indicating that output growth recovered to a ten-month high following the soft patch seen during much of last year," said David Hensley, director of global economics coordination at JPMorgan. "The continued upward trend in PMI orders suggests the PMI, and global production growth, may strengthen further in the next few months."
Domestic growth also strong
However, not all the strong growth came from emerging markets - the U.S. enjoyed significant manufacturing expansion as well. The Institute for Supply Management's manufacturing index jumped to 53.1 in January, compared to December's 50.2 - a number that exceeded expectations.
This domestic growth is somewhat unexpected, as payroll tax increases are resulting in lower paychecks for most Americans. Some businesses anticipated this could hurt consumer spending, but strong manufacturing trends thus far seem to show otherwise.
Supply chain optimization
Companies producing an increased number of merchandise will need to effectively optimize their supply chains and ensure their procurement and logistical capabilities can handle the fast-growing manufacturing activity. Businesses may need to increase their strategic sourcing efforts to guarantee they have a sufficient supply of raw materials to avoid a production shortage as manufacturing continues to expand. Similarly, businesses will need to be certain their shipping processes are equipped to deal with a larger number of goods than usual, or they risk not being able to deliver their extra merchandise to consumers.